In focus today
From the US, the ISM Services index is due for release for January. The December data pointed towards weakening growth momentum, but the latest signals from flash PMIs have been more optimistic.
In the euro area, we receive the February Sentix investor confidence indicator as well as December PPI data.
In Sweden, we get the service PMI numbers for January. The increase to 50 in December was the highest level in five months. The NIER’s economic tendency survey published last week showed a similar trend with the strongest confidence in the service sector in six months which could indicate a continued increase for today’s number.
Overnight, we get December wage data from Japan. Wage growth is key to the outlook for Bank of Japan tightening, but we will probably have to wait for the spring wage negotiations to see wages move much higher.
Early Tuesday morning, the Reserve Bank of Australia will have a monetary policy meeting. The focus will naturally be on the outlook for rate cuts, but we and the markets expect no monetary policy changes just yet.
Fed’s Bostic speaks at 20.00 CET.
The remainder of the week is thin on tier 1 data. Sub-zero Chinese inflation will likely pull some headlines on Thursday.
Economic and market news
What happened overnight
Powell interview: In the US, in an interview with the tv show ’60 Minutes’, Fed’s Powell reiterated his comments from the press conference last Wednesday, that the FOMC would most likely not begin cutting rates in March. He also backed the dot plot released at the December meeting indicating FOMC members expect three rate cuts this year. This compares to markets currently pricing in five cuts for 2024. Powell emphasised the strength of the economy, underlining a strong jobs market, and saying how the economic pain he forewarned in Jackson Hole in August 2022 may come with the following rate hikes in large parts have not materialised. The 10-year US Treasury yield had risen around 3.5bp early morning following Powell’s comments. The interview was filmed Thursday, a day prior to the release of the surprisingly strong Non-Farm Payroll data (see more below).
Oil began the week slightly up this morning with the ICE Front Month Brent contract trading at around USD77.90/bbl.
In China, the private Caixin services PMI rose less than forecast coming in at 52.7 compared to an expected 53 and down from December’s 52.9. The number still indicates the Chinese service sector remains in expansion.
What happened over the weekend and on Friday
US Non-Farm Payroll data for January came in stronger than expected at 353k jobs (consensus expected 185k). December job numbers also saw an upward revision to 333k from 216k. The unemployment rate remained unchanged at 3.7%. On the wage front, average hourly earnings grew by 0.6% m/m, twice the rate expected. This corresponds to a 7% annual increase which does not align with a 2% inflation rate.
US politics: Donald Trump said he would impose tariffs on Chinese goods again if elected. The widely expected Republican nominee for this year’s presidential election said tariffs on Chinese goods could exceed 60%. President Joe Biden safely secured victory in the Democratic party primary in South Carolina. The result was widely expected, and the incumbent is expected to safely secure the DNC nomination.
In the Middle East, the US attacked Iran-backed militias in Iraq and Syria in retaliation of an attack in Jordan that killed three US military personnel. US national security advisor Jake Sullivan was cited for saying the strikes were “the beginning, and not the end”.
In Yemen, the US and UK conducted another round of strikes against the Iran-backed Houthis. This marks their third joined strike against the Houthis. The US conducted additional strikes on Sunday.
Equities: Global equities rose Friday to end the week at all-time high, driven by solid earnings results and better than expected macro. Friday’s NFP report was yet another example of how equity investors are viewing strong macro data very differently now compared to six months ago. Both S&P500 and Nasdaq rose more than 1% despite a very hot NFP print took US 2-year yields up almost 20bp. That would not have happened six months ago. Put on top of this, it was entirely driven by the set of cyclicals while defensives ended lower Friday. It is also worth mentioning that higher yields are still a challenge for long duration small caps and hence regional banks. That fear of CRE related losses has reemerged after the NYCB shocked investors by reducing its dividend, posting a quarterly loss and ramping up loan-loss provisions. In US on Friday, Dow +0.4%, S&P 500 +1.1%, Nasdaq +1.7% and Russell 2000 -0.6%. Asian markets are mostly lower this morning despite solid service PMIs out from the region. Futures in Europe are mixed while a tad lower in US as Powell damped the optimism around rate cuts in a Sunday interview on the tv show “60 Minutes”.
FI: Global rates staged a strong sell-off on Friday on the back of the strong US labour market report. With 353k new jobs created in January, markets sold off from the front end, with the March FOMC meeting repricing 4bp higher to only have 5bp priced in. 2y UST rose 15bp on the day to trade at 4.36%. 10y UST rose 12bp on the day. The US curve move took the European rates higher as well, where the 10y German bund yield ended 10bp higher on the day, and thereby erased most of what was otherwise set for a 15bp rally on the week. Markets are pricing 132bp of ECB rate cuts by year end, which is 13bp less than Thursday’s close.
FX: Friday’s robust US labour market sent US yields soaring which also translated into USD strength and EUR/USD looks set to commence trading this week below 1.08. The effect on Scandies were the opposite, with both SEK and NOK suffering from higher yields and the stronger USD, despite resilient risk sentiment equity-wise.
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