Market movers today
We start off a relatively quiet week with euro area Sentix investor confidence. The index has been on a steady downward trend since August and at -1.5% remains at its lowest level since 2015. But in light of more dovish central bank signals recently and clouds clearing over the US-China trade negotiations, we could see a small rebound in sentiment in February (for more information, see our new Euro Area Macro Monitor – Recession angst is building , 4 February).
In Denmark, currency reserve data for January will be scrutinized by markets for further FX interventions by Danmarks Nationalbank..
Selected market news
Asian stocks started the week with modest gains following strong U.S. economic data and positive comments out of Washington on the trade talks. Trading in Asia is more subdued as much of the region heads into Lunar New Year holidays. The general positive risk sentiment buoyed Japanese stocks, as the less need for safe-haven flows weakened the weaker. Australian stocks also advanced, while Hong Kong shares were little changed.
On Friday, the US economy showed its resilience despite recent concerns about the economy slipping towards a recession : the non-farm payrolls (NFP) release showed more than 300,000 jobs were added in January (although part of the increase was tempered by a downward revision of the strong December number) the report marks the hundredth month of positive employment growth. However, wage growth was more muted. Furthermore, the manufacturing survey ISM was also strong, rising to 56.6 from 54.3 in December, particularly driven by big jump up in new orders to 58.2 from 51.3. Construction spending was strong as well, growing +0.8% m/m in Nov after -0.1% m/m in October. We generally believe the US economy will do well this year, expecting it to grow 2.7% this year (for more details see here ). However, in terms of the Federal Reserve, the central bank has clearly hinted that inflation developments will be important in driving further rate hikes and as wage growth was the only soft spot in the NFP release on Friday, the market pricing of the next Fed hikes will probably not change much, indicating the Fed is on hold for now.
Risk sentiment was on positive news on the trade talks between China and the US as U.S. President Donald Trump over the weekend told CBS that trade talks with Beijing are “doing very well”. He also sounded confident an agreement with North Korea was on the horizon. On the trade discussions with China, Xi Jinping and Donald Trump ‘may meet in Da Nang, Vietnam’ on February 27 and 28 just shy of the end-February deadline according to sources familiar with discussions ( see here ). In our view, we are getting more confident that we are closer to a deal and that the probability of a deal in March has increased. The intense efforts put into the talks at the highest level – including from Trump and Xi – suggest that both sides are very keen to get the work done ( for more details, see our China Weekly Letter–On track for a trade deal, first signs of a bottom in growth , 1 February).
