Today's Key Points

  • Some calm has returned to financial markets overnight following yesterday's volatility on renewed concern about the health of the financial sector. It looks like a flat opening on all markets.
  • There has been no market impact from the release of US automakers' business plans. They will need substantial new cash injection but GM has ruled out Chapter 11 filing.
  • The main focus today will be the release of minutes from both Fed and Bank of England and President Obama's announcement of a relief package for US homeowners.

Markets Overnight

It looks as if European stocks markets will open flat or slightly lower this morning following yesterday's sharp declines. In the US, S&P 500 and Nasdaq closed down 4.6% and 4.2%, respectively. There was weakness across the board, although financials were hit particularly hard on the back of continued concerns about the health of the financial sector. Financial stocks in the S&P 500 plunged 9.8% yesterday. After market close, automakers GM and Chrysler released business plans as conditioned by the government's rescue package for the auto industry. Both automakers said they will need additional cash (GM as much as USD16bn) but GM did not see a Chapter 11 filing as a viable solution for GM longer term.

Asian stock markets are in the red across the board this morning, although mostly catching up on yesterday's negative stock markets in Europe and the US yesterday. This morning the Nikkei is down 1.5% and the Hang Seng is down 1.6%.

Compared with yesterday the FX market has been relatively calm overnight. It has been mostly range trading in the major currencies. Both EUR/USD and USD/JPY are largely unchanged at 1.258 and 92.41 since European market close yesterday. In Scandinavia EUR/SEK is slightly softer at 11.11 and EUR/NOK is largely unchanged at 8.842

With some calm returning to financial markets, bond yields have stabilised overnight following yesterdays decline and are likely to take their lead from the stock market this morning. Since market close in Europe yes-terday 10Y US bond yields have only declined marginally to 2.65% and 2Y US bond yields are unchanged at 0.87%.

Both crude oil and commodity prices took a heavy beating yesterday. However, in line with other markets prices, they have stabilised overnight. Nymex crude oil for March delivery this morning is trading largely un-changed at USD34.74.

Global Daily

Risk aversion has gained the upper hand in markets again providing support for government bonds. Short term we see room for some further decline in Euroland 2-year yields and risk of large fluctuations in the longer end of the curve in both Euroland and the US. However, on a 6-12 month horizon we expect 10-year yields to move meaning-fully higher and we recommend using the setback in yields to open short positions at the longer end of the curve or to move into steepening trades.

The calendar of economic events is relatively heavy today. In Euroland ECB board member Bini Smaghi is scheduled to speak on 'Looking beyond the Euro's first decade' at 15:40 CET. In the US, Bernanke's speech on Fed programs at 18:30 CET and the release of the FOMC minutes at 20:00 CET will take centre stage. The focus will be on the FOMC's discussions on buying up government bonds and Bernanke's speech could give a hint on whether the stance at the FOMC has changed since the January meeting. President Obama's announcement of an estimated USD50-100bn relief package for Americans facing home foreclosure is likely to attract attention as well.

On the economic data agenda, the Bank of England will release the minutes from the latest monetary policy meeting at 10:30 CET. Later in the day at 14:30 CET we will get a take on the US housing market with the release of housing starts and building permits for January. We expect housing starts to increase to 560K annualised and building permits to slide further to 500K annualised. Industrial production data is due at 15:15 CET and we expect produc-tion to show a decline of 1.0% m/m in January. In equity markets, the stream of earnings reports continues today with Société Générale and Commerzbank reporting among others.

In the FX market the BoE minutes are the important piece of news for GBP. Even though the Bank of England only slashed rates by 50bp at the February meeting, the minutes are expected to show that the committee is very wor-ried about the gloomy outlook for the UK economy. Remember, the inflation report signalled a clear need for zero interest rate policy and quantitative easing in the UK. If more than just the usual dove Blancheflower has voted for a bigger rate cut than 50bp it could weight on the already weak GBP. However, the EUR also looks quite vulnerable at the moment so we prefer to play a weak GBP by selling cable (GBP/USD). But that said note that EUR/GBP in fact dropped yesterday to below 89. The EM jitters are much more serious for the eurozone than for the UK. EUR/GBP is also dragged lower by the latest rally in USD.

In terms of the EUR, the jitters regarding the lack of economic sustainability for several euro countries continue. There is in that respect a lot of focus on the rising economic problems in many Eastern and Central European coun-tries and the repercussion it might have on the eurozone and not least its banking sector. We expect these worries to continue at full speed today and expect the USD rally to continue and see further downside for EUR/USD. The general collapse in risk appetite and e.g. commodity prices are also pushing EUR/USD lower.

Scandi Daily

Yet another day with no key figures in Sweden, but a day that may be just as exciting in terms of market move-ments as yesterday. If feels like deja vú all over again. Stocks plummet, intra-EMU spreads widen, bond yields fall, the SEK depreciates...all the knee-jerk reactions in the face of heightened risk fear. We remain sidelined in terms of curve trades and outright bets right now. We do, however, still think Swedish mortgages with a hedged FX exposure is interesting in the medium term. But watch out for short-term underperformance in this risk climate.

In the Scandi FX market we did see both EUR/NOK and EUR/SEK significantly higher yesterday. The SEK is being battered for several reasons. The jitters regarding the Baltics and the repercussion on the Swedish economy and the Swedish banking sector, the global growth worries and the risk of GM entering into Chapter 11 and the possible consequences for the Swedish automaker Saab is a very nasty cocktail for the SEK. Add to these factors a growing concern in the market that the Riksbank is in fact serious when talking about zero interest rate policy - we certainly think it is. All in all it is hard to find any support to the SEK these days and we must probably see a complete turnaround in the risk picture if EUR/SEK is not to continue trading higher also today. EUR/NOK has been pulled higher by the higher EUR/SEK the past couple of days. A weaker SEK com-bined with the drop in commodity prices yesterday night leaves the NOK vulnerable today. But still we favour the NOK to the SEK and we expect NOK/SEK to test 126 in a very short time.