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Little News In Trump’s State Of The Union Speech

Market movers today

In the euro area, German factory orders for December will be in focus after last months’ marked declines. Markets will especially keep an eye on whether orders from car manufacturers, which declined by -8.8% y/y in November, recovered some ground at the end of 2018 (see also Research Germany – The epicentre of the euro area slowdown, 27 January 2019).

In the US, trade data for November is due out. After the scarcity of hard economic data releases during the government shutdown, it will be good to finally get more evidence on how the economy has fared in Q4 18.

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We might also get yesterday’s postponed Swedish industry and services production data (for December), set to be released sometime between 6-12 February and in Denmark the refinancing auctions continued.

Selected market news

There was little market driving news to be found in Trump’s State of the Union overnight. Trump argued that the US has a ‘moral obligation’ to build the border wall. However, he did not declare a ‘national emergency’ to fund the wall as some commentators had been speculating ahead the speech. Trump bragged about his 2017 tax cuts but did not speak of new ones ahead of the 2020 election. In respect of the risk of a new government shut-down when the current extension runs out there was little news except that Trump called for bipartisan unity. Importantly, there was little reference to the on-going China-US trade talk.

The service PMI from the Eurozone countries yesterday once again underlined the division between Italy and Spain in the periphery. In Italy we saw yet another negative surprise that points to still very weak domestic demand and a sustained slowdown in the Italian economy stretching also into 2019. On the other hand, the fourth consecutive increase in Spanish Service PMI was encouraging. It indicates that the private sector there had a strong start into 2019. It’s quite astonishing how resilient the Spanish economy continues to be to the European slowdown.

The rally in global risk markets continued yesterday with especially European indices moving notably higher. The positive sentiment was carried over to the US where NASDAQ once again took the lead. NASDAQ is now almost 20% percent higher from the December low and are about to enter an ‘official’ bull market. Asian markets are also in green.

10Y Bund yields ended the day lower as periphery came under pressure despite a Reuters story based on ‘sources’ said that ECB members where reluctant to change the forward guidance [in a softer direction] as it would tie the hands of a new ECB president. US Treasury yields ended the day lower. A slightly lower than expected ISM non-manufacturing index in the US supported the move.

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