Today's Key Points

Daily Forex Technicals | Written by Danske Bank | Aug 22 08 07:37 GMT |
Danske Daily

* Equities rebounded late yesterday and S&P500 finished up 0.25% driven by energy stocks. Asian stock markets are lower
* Oil prices back up to USD 121 on geo-political tensions. US bond yields have been stable overnight after rising yesterday. EUR/USD has also stabilised overnight after rising to 1.487
* On the agenda today will be a speech by Fed chairman Bernanke at Jackson Hole. In Europe industrial new orders and Belgian business confidence is released. No data in Scandinavia

Markets Overnight

The major drivers in markets continue to be financial news and developments in oil markets. Equity markets started out weak yesterday on the back of more negative news on the situation in the US mortgage giants Fannie Mae and Freddie Mac (see Flash comment on our website). However, a major rebound in oil prices lifted energy related stocks, and the broad indices closed in positive territory with S&P500 up 0.25%. Asian stock markets are soft with Nikkei down 0.5%. Oil prices rose from USD 116 to USD 121 on the back of further geopolitical tensions between the US and Russia. US officials announced a deal to install a missile defence system in Poland, and this made Russia issue a statement that its response to the missile shield 'would go beyond diplomacy'. Markets fear that Russia will reduce oil output in response. Focus in oil the market has thus shifted from 'demand destruction' to supply concerns. The oil price has been stable overnight at USD 121.

Bond yields rose throughout the day yesterday. The rise in oil prices weighs on the bond market as it puts inflation concerns back on the agenda. We have seen signs in recent days also that the decline in yields may have run its course for now. US bond yields have not changed much overnight and 2-year and 10-year bonds are trading around 2.33% and 3.84% respectively. EUR/USD rose throughout the day and has stayed around 1.487 since yesterday. EUR/SEK has fallen further overnight to 9.356. A slightly hawkish speech by Riksbank member Öberg supported SEK. EUR/NOK is unchanged around 7.93 after falling on back of the oil price rally.
Global Daily

Attention in markets should continue to be on oil market developments and financial news. We have very little on the agenda in terms of data, but a speech from Fed chairman Bernanke at Jackson Hole (16.00) will be followed closely. Bernanke is going to speak on financial stability. Given recent events this could give some important insights into Bernanke's thinking on how it may affect the economy. The Fannie Mae and Freddie Mac crisis is a further threat to US housing and increases the risk that the downturn may be longer.

In Europe data for Euroland industrial orders (11.00CET) and Belgian business confidence (15.00CET) is released, but neither are big market movers – especially not in the current environment.

Flash PMI came in broadly in line with expectations yesterday, although Germany surprised to the downside. The market response to the negative surprise from Germany (released prior to the overall Euroland number) was very limited, though, which may suggest that the market is to a wide extent pricing in economic weakness. Oil price rises put inflation back on the agenda, and if this continues it may weigh further on bond markets. Overall we think bond yields are likely to consolidate in the short term after the recent decline. Our forecast is still for yields to come lower on a 3-month horizon, as the global economy should come close to recession by the end of the year.

Bernanke's speech at the Jackson Hole conference can potentially send the USD in any direction. Accordingly, cautiousness is recommended around 16.00CET. The GBP is expected to be affected by the GDP numbers that we receive at 10.30CET. The slowdown has now got its grasp not just on sentiment and survey data, but also on hard data. We are looking for several downbeat UK readings in the next quarters and see little chance that today's numbers may spoil that picture. There is especially downside risk on the private consumption component, where surveys have lately pointed downwards. Chance that EUR/GBP should edge higher today.
Scandi Daily

Today we receive retail sales data and the National Debt Office's forecast in Sweden. On retail sales we expect a recoil after last month's very weak reading, but apparently we are more optimistic on this issue than market consensus suggests. Bearing in mind that this is indeed a rather volatile series our advise is however to refrain from taking any major bets on this particular outcome. The SNDO data shall be interesting since the actual outcomes point toward an excess fiscal balance surplus of SEK 20bn compared to the SNDO's latest forecast. In spite of this we do not expect any major revisions, since this would also entail making a forecast on possible privatisation flows in conjunction to TeliaSonera and France Telecom.

Danske Bank
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