Market movers today
Following the recent hawkish comments from dovish FOMC members, today’s single most important event is Fed Chair Janet Yellen’s speech tonight. Given the relatively strong data, easy financial conditions and calm markets with record-high stocks, it seems likely to us that the Fed will hike at the upcoming meeting (despite the softer signals from the latest minutes), especially now that markets more or less expect the Fed to do so (markets have priced in over a 70% probability of a March hike). Still, we would like to hear it from Yellen herself to get the final confirmation and it is likely that she echoes the other FOMC members saying an increase is coming ‘soon’. Also Fed Vice Chair Stanley Fischer and Charles L. Evans are also due to speak tonight.
We have a busy calendar in terms of economic data releases today. We get final PMI service indices for February from Europe and the US and the UK index, in particular, should be interesting, as services confidence has been on the weaker side in recent months. Also, look out for retail sales for January in both Germany and the euro area.
In Sweden, both industrial and service production data for January are due. In Norway, we get both unemployment and house price data for February. For more see page 2.
Selected market news
US stocks closed lower yesterday with S&P500 falling 0.6%, the most in a month, as investors took profit from the solid gains recently and the Fed has talked up the probability of a hike at the upcoming meeting. Also Asian equities are trading lower this morning. EUR/USD is trading more or less unchanged at 1.05.
Danmarks Nationalbank sold DKK4.7bn in FX intervention in February to cap the EUR/DKK lower bound. The Danmarks Nationalbank reaction indicates that we have reached the lower bound of EUR/DKK for now, which looks to be around 7.4330. We forecast EUR/DKK at 7.4350 in 1-3M and 7.4400 in 6-12M and that the key policy rate will stay unchanged at -0.65% in 12M. Read our take here.
In the euro area, HICP inflation hit the ECB’s 2% target in February – it is the first time since January 2013 that it has been at 2%. It is worth noting that HICP core inflation was unchanged at 0.9%, well below the 2% target, meaning the ECB is not about to exit its accommodative monetary policy (see also our latest ECB review: Draghi remains dovish until core inflation rises, 19 January). The ECB is meeting again next week.
In France, presidential candidate François Fillon continues to suffer as his own party members are abandoning his campaign and the police searched his home in Paris (see also Bloomberg). According to the average probability implied by betting odds, the probability of a Fillon win is only 14%, while the probability of an Emmanuel Macron win has surged to 54%. The probability of a Marine Le Pen win is unchanged at 33%.
