Market movers today
The inflation figures in Germany, France, Italy and Spain point to an increase in the euro area HICP inflation figure due today of 0.2pp, which is slightly higher than our and consensus expectations of an increase from 1.8% to 1.9%. We lift our forecast to 2.0% y/y given the country figures where the driver behind the higher inflation seems to be higherthan- expected food price inflation. We still see some downside risk to the forecast as the 1.8% y/y print in January was low when looking at the unrounded figure.
February has seen DKK climb to its highest levels against EUR since Lars Rohde began as governor of Danmarks Nationalbank (DN) in 2013, so the market will be keeping a particularly close eye on whether this has prompted the central bank to sell DKK in FX intervention when February’s FX reserve data is published today.
Norwegian retail sales figures for January are hotly awaited after the surprise 2.1% slide in December. We estimate a 0.9% m/m rebound, although the surprisingly weak inflation figures may have been due to lower sales.
Selected market news
The Federal Reserve’s Lael Brainard stated yesterday, ‘Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path’, thus adding further support to expectation of a near-term US rate hike fuelled by hawkish comments from other members of Federal Reserve earlier this week.
PCE core inflation was unchanged at 1.7% y/y in January as we had estimated. Total PCE inflation rose from 1.6%. to 1.9%. As PCE core inflation remains somewhat below the 2% target and has been around the same level for some time, the Fed can afford to stay patient. We are looking forward to hearing more from Janet Yellen, who is due to speak tomorrow.
In general, demand for riskier assets has done quite well over the recent period of rising expectations of a near-term Federal Reserve rate hike. US stocks rose almost 1.5% yesterday and Japanese stocks are up about 1% today. Commodity prices are also holding up fairly well. The global economy seems to be progressing at a decent pace, supporting this development.
This was highlighted by the US ISM manufacturing index for February released yesterday. It moved higher from 56.0 in January to 57.7 in February – we are not far from the highs around summer 2014. Nevertheless, Atlanta Federal Reserve’s ‘nowcast’ GDP model revised down its estimate for Q1 US GDP growth to 1.8% following the data releases in the US yesterday.
The Energy Information Administration reported that US crude stocks rose 1.5mb last week. Hence, the US crude stock build has picked up pace again after posting only a small rise last week. Overall, since OPEC implemented its output cut deal, world floating storage of oil has declined around 40mb, but it has more or less been mitigated by a similar rise in US crude stocks. Thus, so far OPEC has failed to force world crude stocks markedly lower.
