Market movers today
The first central bank week of the year kicks off with a round of macro data. The Spanish Flash Inflation will give us the first taste of euro area’s January price developments ahead of the euro area flash print on Wednesday. The January data will be complicated by several factors, and not least the updated index weights (see Euro inflation notes, 25 January, for a rundown).
In addition, Q4 Flash GDP data is due for release from Germany and Sweden. The full year data released earlier suggested that Germany might have narrowly escaped a recession late last year, while we still think the Swedish GDP most likely contracted in Q4.
Euro area Economic Sentiment Indicators for January will be released, consensus is looking for a slight uptick following last week’s upbeat PMIs.
Later in the week, focus will naturally be on the central banks, we expect a 50bp hike from the ECB (see our ECB preview, 26 January), 25bp from the Fed (Fed preview, 24 January) and 50bp from the Bank of England (BoE preview, 27 January). Markets will also focus on a range of US labour market data, and not least the Jobs Report on Friday, as well as the US ISM and Chinese NBS PMIs.
The 60 second overview
US: House Speaker McCarthy plans to meet with President Biden on Wednesday to discuss an increase of the US debt ceiling and avoid sovereign default. The x-date, the day when US runs out of money to roll over maturing debt, is likely still months away – potentially early June, but likely in July. It is therefore encouraging that policy makers meet already now to discuss the issue.
Japan: Bank of Japan governor Kuroda stressed in comments to parliament that it is possible to hit the 2% inflation targeting with current monetary easing, but a virtuous cycle with higher wage growth is needed.
FI: It was a tale of two stories on Friday. In the morning, the rates sell-off from Thursday continued with Bunds touching 2.28% (+6bp) as markets reassessed the potential of a hawkish take this week, although seen on the day as a whole core yields ended virtually unchanged on the day.
FX: FX will take direction from the Fed and the ECB on Wednesday and Thursday, respectively. EUR/USD has levelled out and is starting the week at 1.0870. USD/JPY, which is also highly susceptible to relative rates, has dropped overnight on speculations that Bank of Japan might tighten policy further. The cross is now at 129.50. EUR/SEK is back above 11.20, at the end of the month supported by rebalancing flows. EUR/NOK at around 10.75.
Credit: Credit markets ended the week treading water, as investors turned their focus to upcoming central bank meetings. Itrax main was basically unchanged (+0.1bp) ending at 78.5bp. Itrax Xover widened 1.2bp to close at 410.8bp. The primary market had slowed down but was definitely still open. Most notable Nordic deal on Friday was the Swedish high yield issuer, GoNorth, printing SEK550m (after upsizing from SEK520m) at a spread of MS+1100bp.
