Allan von Mehren
Danske Bank A/S
Market movers ahead
After the German election over the weekend, Angela Merkel is expected to continue as Chancellor but a broad CDU/CSU-SPD coalition seems to be the most likely outcome.
We expect Chinese HSBC Flash PMI to rise further to 51.1, from 50.0 in August.
Euro Flash PMI should also rise but the increases are expected to be more moderate going forward.
We expect US core durable goods orders to rebound following the disappointing fall last month. We expect US consumer confidence to decline.
We expect increased focus on US negotiations on the 2014 budget as 30 September deadline draws nearer.
Global macro and market themes
With the Fed’s dovish stance, the biggest tail risk for risk assets was removed this week. In combination with recovering emerging markets and the ongoing global recovery, this puts risk assets in a sweet spot, in our view.
US forward-looking indicators continue to be strong, while hard data on consumption, housing, capex and payrolls have been on the soft side.
The Fed secured a continued consolidation in the bond markets and carry trades should benefit from ample liquidity, lower volatility and lower tail risks.
The USD strengthening was postponed with the Fed announcement. However, it is still intact for 2014, when US hard data is set to get stronger.
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Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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