Market movers today
After a very busy week, this week should be much slower, at least in terms of scheduled events and data releases. Today, we have a few data points out from the euro area, namely retail sales for December and Sentix investor confidence for February, and also December factory orders in Germany. Probably more importantly, we will have the postponed German CPI data for January out Thursday.
Other highlights this week are the rate decision from the Reserve Bank of Australia, where we look for a 25bp hike but markets price a small probability of unchanged rates, the University of Michigan consumer survey in the US including inflation expectations, and an EU summit on Thursday-Friday that will discuss Europe’s response to the US IRA, but probably not reach any firm conclusions.
Thursday we have the Riksbank meeting in Sweden where we look for a 50bp hike.
The 60 second overview
US data: The US labour market report came in red hot on Friday with 517k in the NFP figure, vs. consensus of below 200k. The unemployment rate continued to decline to 3.4%, from 3.5%. Also the ISM report was strong, in particular new orders. Also prices paid remained elevated. Markets reacted strongly to Friday’s non-farm payrolls report and the rebound in ISM services. Both indicated a surprise rebound in the underlying consumption engine of the US economy: the wage sum soared back to post-Covid trend lines and new services orders rebounded sharply to levels above 60. Both support the notion that it is far too early for the Fed to declare victory against elevated inflation. This was also reflected in the market reaction with 2Y USD swap rates rose 16bp on both markets pricing in more short-term hikes as well as markets removing some of the cuts embedded into the curve post summer. EUR/USD fell sharply by 1.5 big figure returning the cross to the levels of early-mid January below 1.08.
ECB: After the strong market rally on Thursday on the back of the ECB meeting, we saw a number of governing council members affirming the 50bp in March view and also a hike in May. Only Holzmann said that they may only reach the policy rate in Q3.
Euro area data: Euro area PPI inflation continued to decline to 24.6% in December (from 27.0% in November 2022), mostly due to energy. But PPI for core consumer goods edged up a tad again (9.3% after 9.2% in November), which suggests that cost-push inflation for core inflation is not yet done, although a peak for goods inflation should come probably fairly soon. In a new piece; Euro macro notes – From recession to stagnation, we revise our view of the near-term prospects of the euro area economy which have brightened amid a more balanced risk picture.
BoJ: During the weekend, BoJ deputy governor Amamiya was rumoured to take over from Kuroda later this year. If chosen, he would probably continue the current monetary policy setting.
Geopolitics: While the US shot down the Chinese ‘spy baloon’ during the weekend, this is yet to be noted in financial market pricing of the Asian trading session.
FI: Markets corrected higher in yields Friday morning reserving some of the massive rally on Thursday’s ECB induced rally. The US labour market report came in very hot and sent yields significantly higher which left 10y US treasuries 15bp higher on the day. That took European rates higher and 10y German yields ended 12bp higher, and is now broadly unchanged compared to the level pre-announcement. Intra-euro area spreads were broadly unchanged on the day amid bear steepened in the curves.
FX: Broad based USD rally on Friday after strong US data releases. EUR/USD fell below 1.08 and USD/JPY rose above 130. The later found further support overnight from news that Japanese government may pick current Bank of Japan deputy governor Amamiya for new governor. EUR/DKK rose sharply to around 7.4450 on Friday after Danmarks Nationalbank (DN) widened the policy rate spread to ECB Thursday.
Credit: CDS indices were marginally tighter on Friday following Thursday’s ECB-induced rally. Meanwhile, the primary market was almost quiet, with only Nordea being active in the EUR benchmark segment, printing a 3NC2 EUR1bn SNP deal.
