Focus will be on the Bank of England and the ECB today and the markets will look for any hints from the latter about the situation concerning Portugal.
Focus will be on the Bank of England and the ECB today and the markets will look for any hints from the latter about the situation concerning Portugal. The calendar features U.K. industrial production and U.S. producer prices, both of which are expected to increase. Trade data for the U.S. is also released and should show a slight widening of the deficit.
BoE, ECB rate announcements
Portugal’s successful auction yesterday saw risk rally and while we maintain our stance that Portugal will sooner or later apply for a bailout package perhaps we can concentrate on other events today than the constantly reappearing European sovereign debt concerns.
Both the ECB and the Bank of England will announcement rates today, but neither is expected to provide much action, we believe. The central banks will keep rates at 1% and 0.5%, respectively, and in the case of the latter the asset purchase target amount will remain at £200 billion.
The BoE should not change its monetary policy stance until a clearer picture of the economy is available given all the changes this year including a VAT increase to 20%. The ECB’s Trichet is also not expected to say much we don’t already know which includes potential questions about a Portuguese auction where the President of the ECB will maintain that any prospective bailout applicants have to make the first move.
Portugal’s successful auction yesterday saw risk rally and while we maintain our stance that Portugal will sooner or later apply for a bailout package perhaps we can concentrate on other events today than the constantly reappearing European sovereign debt concerns.
Both the ECB and the Bank of England will announcement rates today, but neither is expected to provide much action, we believe. The central banks will keep rates at 1% and 0.5%, respectively, and in the case of the latter the asset purchase target amount will remain at £200 billion.
The BoE should not change its monetary policy stance until a clearer picture of the economy is available given all the changes this year including a VAT increase to 20%. The ECB’s Trichet is also not expected to say much we don’t already know which includes potential questions about a Portuguese auction where the President of the ECB will maintain that any prospective bailout applicants have to make the first move.
U.K. manufacturing sector to improve
The PMI Manufacturing survey last week confirmed similar surveys from the U.S. and Eurozone, namely that the manufacturing sector of these economies continues to perform well. The overall index in the survey rose to 58.3, the highest in a decade, and has provided the markets with the ammunition needed to forecast that today’s report on industrial production while show that production rose 0.5% month-on-month in December.
The PMI Manufacturing survey last week confirmed similar surveys from the U.S. and Eurozone, namely that the manufacturing sector of these economies continues to perform well. The overall index in the survey rose to 58.3, the highest in a decade, and has provided the markets with the ammunition needed to forecast that today’s report on industrial production while show that production rose 0.5% month-on-month in December.
U.S. producer prices expected to rise, trade deficit to widen
Turning to the U.S. producer prices are set to rise yet again helped by the surge in energy in December, a month which saw Crude rise 8%. Following November’s 0.8% month-on-month change in prices, we expect prices are the producer level to show another gain of 0.7% (consensus: 0.8%) while core prices should also improve by 0.2%.
Turning to the U.S. producer prices are set to rise yet again helped by the surge in energy in December, a month which saw Crude rise 8%. Following November’s 0.8% month-on-month change in prices, we expect prices are the producer level to show another gain of 0.7% (consensus: 0.8%) while core prices should also improve by 0.2%.
The disappointing wholesale inventories report earlier this week suggests that the contribution from inventories in the fourth quarter may be smaller than previously expected (tomorrow’s business inventories report should help clarify that), but on the other hand trade data has been kind to the U.S. in recent months and even though we look for a slightly increase in the deficit to $40 billion, net exports looks on track to boost GDP in the fourth quarter.
Equity Kickoff: Higher on Intel expectations
European cash indices will open higher Thursday lead by a general strong expectation for the upcoming earnings season and today’s release from Intel is expected to boost that sentiment.
In terms of planned data events look for BoE and ECB interest rate announcements at respectively and especially Trichet’s wording in the follow up conference. Trichet is widely expected to comment on the Portuguese situation.
Equity markets will focus on Intel earnings and the conference call afterwards. There is no release time, but earnings are expected to show an increase from 0.440 USD per share in Q3 to 0.530 USD per share in Q4. This is to a large extent driven by sales growth as sales growth is expected to increase from 10.72 bln. USD to 11.36 bln. USD. Intel’s own guidance for Q4 sales is 11.40 bln. USD. The really interesting issue with Intels sales growth is where it is located; in Q3 sales growth was all coming from emerging markets, but this time around we do expect to see some of it origin from the U.S. If this is the case this will strengthen our belief that the U.S. is in for a strong recovery this year where we expect a GDP growth of 2.7%.
Lately there has been talk of a bailout of Portugal from EU/IMF. In our view there is a great likelihood that this will be the outcome of the current situation for Portugal. Trichet is not expected to move interest rates in either direction for a long time, neither is the BoE for that matter. But llisten carefully to the ECB press conference where we expect Trichet to indirectly comment on the situation in Portugal, pointing toward whether it will receive a bailout. If that should be the case, then expect markets to start testing Spain. As we have said several times now, Spain is a whole different story; it is a BIG economy. So big that if the bond investors really put pressure on the Spanish government bonds you should expect EURUSD to drop and equity markets, at least in Europe, to drop too – whether we are in an earnings season or not.
In today’s trading we are bullish on tech companies as we expect solid earnings from Intel – so look for STMicroelectronics. JPMorgan is out with earnings tomorrow and here we expect a surprise to the upside, so we are still positive on JPMorgan, Goldman Sachs and UBS. It is widely expected that due to QEII the fixed income trading divisions will drive earnings higher like they did the last time around when QEI was hitting the street. Commodity producers continue to rise in Asia, so look for Rio Tinto and BHP Billiton.
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