Looking for some PMI relief

Market movers today

Focus today will be on PMIs for the euro area, the UK and the US. In the euro area there are some rays of light, not least with the recent German ZEW figures, and we look for a further uptick to 47.1 in PMI manufacturing for January.

PMI will be particularly closely watched in the UK where very weak data lately has fuelled expectations of a rate cut from the Bank of England at the end of this month.

In the US PMI manufacturing has diverged from the US ISM manufacturing index as PMI has moved higher in recent months, whereas the ISM index has dived lower. Given the more positive manufacturing signals in China for some time now, we believe more in the PMI and expect a further rise this month.

The Corona virus is still going to get attention, as China has now put millions of people on lockdown in two cities at the epicentre of the virus outbreak that has killed 25 people and infected more than 800 so far. Yesterday the WHO declared it an emergency, though not yet an international concern.

Finally, over the weekend we have an important regional election in Italy in Emilia-Romagna, which looks set to result in a defeat for the PD-Five Star coalition in one of the left's traditional heartlands, which may prompt calls for the coalition to resign.

Selected market news

Yesterday's ECB meeting was uneventful in terms of new policy signals, as Christine Lagarde refrained from giving clues about the future of monetary policy, because data since the December meeting was broadly in line with expectations.

The highlight was the launch of the strategic review although the details were scarce. The ECB highlighted the following. (1) The review will encompass a quantitative formulation of price stability, a monetary policy toolkit, economic and monetary analyses and communication practices. (2) Other considerations, such as financial stability, employment and environmental sustainability, will also be part of the review. (3) The ECB expects to conclude the review by the end of 2020. (4) The review will be based on thorough analysis and open minds, engaging with all stakeholders.

As we expected, the ECB left its growth risk assessment as skewed on the downside, while acknowledging some stabilisation in euro area growth dynamics and less pronounced risks surrounding international trade since December.

Norges Bank (NB) left the sight deposit rate unchanged at 1.50% in a decision widely expected by both markets and analysts. NB clearly expects the policy rate to remain unchanged at least until the next 'main' meeting in March. This is in line with our expectations, but we still pencil in a rate hike in June 2020, even if the probability of this call materialising has fallen considerably in recent weeks and arguably is not much more than 50% at this stage.

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