Market movers today
The market highlight today will be the January PMI figures for the euro area, UK and US, which will give a first glimpse into the state of the global economy in 2023. The latest euro optimism could get another boost from further signs that the rebound in euro area leading indicators extends into Q1, while in the US we expect PMIs still to paint a weak overall picture, as it seems the economy clearly lost steam.
In Denmark, business confidence is on the agenda and in Sweden we get Prospera inflation expectations, which could show a drop.
Overnight, Australian Q4 CPI could be the deciding factor for RBA’s February meeting, as markets remain split between a pause and a 25bp hike.
The 60 second overview
Euro area: While ECB’s 50bp hike next week seems like a done deal, yesterday’s comments reflected uncertainty over the hiking pace in March. ECB’s Kazimir explicitly favoured two more 50bp hikes, while Lagarde reiterated that rates will have to be hiked ‘significantly at a steady pace’. That said, both Stournaras and Visco called for more cautious approach. We expect two more 50bp hikes, followed by a final 25bp in May, which is also the base case for the markets with cumulative 119bp priced in by May. On a positive note, euro area flash consumer confidence continued recovering in January, although from a historical perspective the index still remains extremely low at -20.9 (Dec. -22.0).
PMIs today: Consensus expects a modest uptick in the euro area PMIs today, but overnight, both Japanese and Australian PMIs painted a fairly mixed picture. Service sector indices recovered from December, but manufacturing PMI remained low in Japan and even ticked lower in Australia. In Japan, the underlying price indices sent mixed signals, with service sector input price pressures continuing to build (62.6, from 61.5), but output price indices easing. Meanwhile the Australian labour market appears resilient to the overall gloomy economic outlook, with both employment indices rising further above 50.
Commodities: Brent oil prices rose above USD88/bbl yesterday, while LMEX industrial metals index is already 25% above its late October lows. Faster reopening in China is expected to give a boost to commodity demand, as record-high savings suggest that pent-up demand could drive a quick uptick in economic activity. Last week, we also revised our Chinese GDP forecast higher.
FI: European government bond yields and interest rates rose modestly as the market looks towards two hikes of 50bp at the next two meetings in February and March, respectively. Hence, we are gain looking at a terminal rate of 3.25% to 3.5%. We did see a widening of the Bund ASW-spread that continues to struggle breaking through the 60bp-level. The European yield curves continue to be significantly inverse and with ECB remaining hawkish it is difficult to see this trend being broken.
FX: Yesterday’s FX session was generally characterised by a modest USD comeback and the rise in oil supporting the traditional oil currencies and not least NOK. JPY suffered from both the rise in oil and global yields leaving USD/JPY not far from the 131 mark. With the strengthening of the dollar EUR/USD has come back below 1.09 again.
Credit: Credit markets were off to a decent start on Monday despite a mixed outlook for rates amidst hawkish comments from the ECB. Itrax main tightened 2.7bp to close at 78.8bp and Itrax Xover tightened 14bp to close at 415.1bp. Primary market activity for corporates was slowing down from recent weeks, with most corporates moving into silent period before results.
Nordic macro
Sweden: Prospera’s survey of money market players’ inflation expectations, due for release at 08:00, ought to show a significant drop, in particular at the 1-year horizon from the most recent print of 4.6%. This is because we ourselves forecast inflation to be quite close to 2% at the beginning of 2024.
