Danske Daily

Key news

The slightly positive risk sentiment appears to be intact with no major market moving news overnight.

Stock markets are mostly higher and EUR has strengthened slightly across the board.

Focus today will be on the resumption of the PSI negotiations and Hungarian prime minister Orban’s address to the European parliament.  Earnings will also remain in focus.

Markets Overnight

So far the slightly positive sentiment appears to be intact. Economic data have in recent days beat expectations and the impact from S&P’s downgrade of France and other eurozone countries has so far proven modest. The eurozone’s bailout fund EFSF yesterday received solid demand at its 6M debt sales, showing that the loss of its triple AAA rating did not have a substantial impact on EFSF’s ability to fund itself – at least for short maturities.

There has not been any major market moving news overnight.  The World Bank yesterday revised its forecast for global GDP growth in 2012 markedly lower to just 2.5% from previously 3.6%, see World Bank and it expects global GDP growth to only recover modestly to 3.1% in 2013. The World Bank expects  the euro area to contract 0.3% in 2012 and expand only 0.1%  in 2013. The US stock market closed higher albeit off from earlier highs. S&P 500 closed up 0.4%. Disappointing Q4 earnings from CitiGroup weighed on financial stocks yesterday. The sentiment in the stock market hasremained slightly  more positive in Asian trade. US stock futures have edged slightly higher and Asian stock markets are mostly higher this morning with Nikkei and Hang Seng up 1.3% and 0.3% respectively.

In the US bond market there have been no major market movements overnight and the 10-year US bond yield is trading largely unchanged at 1.86% compared with yesterday’s market close in Europe. In the European bond markets Italian and Spanish bond yields edged slightly lower, 6.50% and 5.13% respectively, brushing off S&P’s recent downgrade.

In the FX market EUR has strengthened across the board on the back of the improved risk sentiment in the market and EUR/USD is this morning trading 1.277. SEK and NOK have also weakened slightly against EUR.

Crude oil prices continue to edge higher with Brent oil up another 0.9% to USD112 on the back of increasing tensions in the Middle East. Iran overnight  has warned Saudi Arabia of consequences if it increases its oil production lost due to oil embargo on Iran.

Global Daily

Focus today: The negotiations on the Greeks PSI between IIF and the Greek government are set to resume today. The main dispute remains what the coupon should be, but also whether collective action clauses are to be imposed, hence, whether the leaders are still aiming for a “voluntary” deal, could be part of the negotiations. On the release calendar UK unemployment figures could attract attention. In the US PPI data and industrial production  will be  the main releases. The NAHB housing market  index is expected to confirm that the recent improvement in the housing market is sustainable.

Fixed income markets: Risk sentiment remains positive despite a negative rating cycle and despite fears of a hard Greek default in the coming months. Stocks markets are higher, volatility is coming down, and peripherals in general  are performing. It certainly helps that US and Chinese data confirm ongoing economic recovery. The markets will look for the 2-year auction in Germany today, where EUR4bn 0.25% BKO Dec-13 are up for sale. It will hardly be a market mover though.