Today's Key Points
* In his Inaugural speech, President Obama promised 'bold and swift' action on the economy.
* However, US stocks dropped and the Dow Jones index fell more than 4% led by financial shares.
* No major events on the agenda today. Focus is likely to be on Obama's fiscal policy and the troubles of the financial sector - not least recapitalisation of the banking sector.
Yesterday was an historic day for the US, when Barack H. Obama became the 44th US president. In his inau-gural speech, he promised 'bold and swift' action on the economy. His economic team is already pushing to complete a bank-rescue plan that can be twinned with the economic stimulus package being negotiated with Congress to alleviate the deepening financial crisis.
The stock market reaction was however chilly. The Dow Jones Industrial Average dropped more than 4% - the worst-ever inauguration day decline. The financial shares component dropped 17%. S&P500 dropped 5.3% and Nasdaq dropped a whopping 5.8%. The negative sentiment carried on overnight in Asian trade. As we speak, Nikkei225 is down 1.9% and Hang Seng dropped 1.8%, which bodes for nervous European opening.
US bond yields dropped somewhat across the curve last night as risk appetite faded. 10Y yields came as low as 2.34% while 2Y yields fell to 0.70%. Overnight, 10Y bond yields are up 7bp to 2.41%, while 2Y yields are more stable around 0.72%.
On FX markets EUR/USD moved one figure higher overnight to 1.298, while Scandinavian currencies have been more stable. EUR/SEK trades around 10.85 and EUR/NOK is at 9.15. British pound remain weak, GBP/USD is at 1.397, after having been as low as 1.386 overnight
There are no major events on the agenda today. Focus is likely to be on Obama's fiscal policy and the troubles of the financial sector - not least recapitalisation of the banking sector. Stock market losses may rub off on interest rate markets today even though yesterday's large drop in US equities did not have a big impact on rates.
There are a few speeches by ECB members today including two from Trichet; however, we do not expect any news that will move interest rate markets.
The NAHB index is expected to remain unchanged at 9 - a very, very low level for a diffusion index. This is a 'if there is a light at the end of the tunnel it is an opposing train' level where just about everybody in the US house building sector is pessimistic.
The pound tumbled yesterday as the UK bank plan fuelled concerns that the financial crisis is escalating fur-ther. GBP dropped to a record low against JPY and breached 1.40 against USD for the first time since 2001. We see little chance that today's minutes from the BoE will provide much support to the struggling pound. The MPC lowered the base rate 50bp to 1.5% in December and we see some chance that the bank might deem it necessary to slash rates below 1% in an attempt to provide as much monetary stimulus to the economy as possible. Dovish minutes are the most likely outcome today, putting GBP at risk again.
There is no news out of Scandinavia today. Next important key indicators are Swedish unemployment data and Danish consumer confidence, both due tomorrow.