Market movers today
A quiet day on the data front, but markets will keep an eye on the Brexit headlines.
Italian markets already sold off yesterday, after the European Commission slashed its annual growth forecast for the country to just 0.2%, bringing back concerns about a resumption of last autumn’s budget fight. To feed the gloom, today’s Italian industrial production figures for December are unlikely to lift investors mood on the economy, which contracted by -0.2% q/q in Q4.
In Scandinavia, we get Norwegian Q4 18 GDP figures and Danish foreign trade data for December. We
Selected market news
Overnight Trump said that he has no plans to meet with Xi Jinping before the 1 March deadline and the end of the 90-day truce on higher tariffs. Hence, the trade war fears are now returning to the market.
Yesterday, the EU Commission released new rather gloomy 2019 winter forecasts. Euro area growth for 2019 was revised down to 1.3% from previously 1.9%. The growth forecasts for Germany was lowered from 1.8% to 1.1%. The EU Commission slashed its 2019 euro area inflation forecast to 1.4%, down from previously 1.8%.
Noteworthy, the growth for Italy was lowered to just 0.2% in 2019 from previously 1.2%. This is well below the assumption in the 2019 budget and further questions the budget deficit assumptions by the Italian government and it could restart the budget fight with the EU. Remember, the EU and Italy agreed on a 2.04% deficit in December. The market reacted negatively to the news and the 10Y Italian spread vs Germany widened almost 15bp. 10Y Bund yields dropped to the lowest level since 2016.
We should expect that also the ECB will present lower growth forecasts when the staff projections are updated next month. It could further trigger market speculations of new easing/postponing of tightening from the ECB.
In light of the gloomy EU commission outlook it is quite important that we now see tentative signs of a bottom in the Chinese business cycle in Q1. Metal prices are up, PMI for large enterprises rebounded in January and export orders also off the lows – see more in China Leading Indicators – First signs of a bottom , 7 February.
As expected, the Bank of England (BoE) yesterday voted unanimously to keep the Bank Rate at 0.75%. BoE lowered both its GDP and CPI inflation projections, but made no big policy signal shifts though it even more strongly highlight the economic growth risks from Brexit.
The poor risk sentiment from Europe was carried over to the US and the major US indices ended the day roughly 1% lower and US Treasury yields dropped further and 10Y US yields are now at 2.65%. Asian markets are also in red.
