Global tech supply chain stutters

Danske Research Team Danske Bank A/S

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.

Download The Full Daily FX Market Commentary

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.