Global tech supply chain stutters

Market movers today

Markets will continue to keep an eye on whether the current slowdown of the spread of the coronavirus continues. German ZEW expectations for February released today will be one of the first indicators showing the potential hit to the European economy from the virus repercussions. For a similar reason the US Empire manufacturing index for February will be monitored closely when it is due later this afternoon.

The UK labour market seems to have shaken off patches of weakness seen in Q3. The December jobs report released today will confirm whether that picture still held at end- 2019.

Growth in Chinese money supply for January is also due. We see some downside risk here due to the prolonged holidays.

 In Sweden, we get unemployment data for January and a new borrowing forecast for 2020 and 2021 from the Debt Office (see next page).

Selected market news

Markets took heart yesterday from People's Bank of China's and government efforts to cushion the coronavirus hit on the Chinese economy, but the upbeat mood evaporated this morning after bad news on the Q1 revenue guidance trickled in from Apple). As production in China is ramped up more slowly than previously anticipated and the effects on the global tech supply chain become evident, equity investors might have to brace themselves for more negative news. Industrial metals and oil are down this morning, together with Asian stocks and US equity futures also point to a weaker opening as trading resumes post the Presidents' Day holiday.

In German politics, Angela Merkel succession race remains in full swing. Following the surprising resignation of Annegret Kramp-Karrenbauer's (AKK) as CDU leader last week, three candidates have so far emerged: pro-European centrist and Merkel ally Armin Laschet, conservative health minister Jens Spahn and pro-business candidate Friedrich Merz, one of Angela Merkel's old rivals. AKK is expected to hold exploratory talks with all three candidates this week, starting with Friedrich Merz today. Meanwhile, voices in the CDU have grown louder to decide the chancellor question already before the summer break and not at the scheduled party convention in December. This would certainly also be preferred from a European perspective, as Germany takes on the rotating EU Council Presidency in H2 20 and an internal power struggle in Berlin would not exactly help driving the EU integration agenda. While the discussions continue, we expect the economic and market impact to remain fairly limited at the current stage. Still, it will be important for markets to keep an eye on the succession race and especially the emerging frontrunner's view on fiscal policy. The probability for fiscal easing would be greatest under an Armin Laschet–led CDU in our view, but according to polls fiscal conservative Merz currently seems to have the better chances.

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