In focus today
The Governing Council of the ECB is meeting today. Besides the regular rate announcement, we will also get updated staff projections. The new projections are likely to show inflation for 2025 revised down to 2%. Whereas neither the revised projections nor Lagarde are likely to close the door to a rate cut at any specific meeting, we continue to view June as the key meeting for a first rate cut. We thus expect an unchanged deposit facility rate at 4%. Read more in our ECB Preview – Policy normalisation in sight, 1 March.
We also receive data on German factory orders for January which will give a hint of where the industrial production figures scheduled for tomorrow are heading.
In Sweden, the SNDO releases the February borrowing requirement which it forecast to be a SEK52.2bn surplus. At 13.00 CET, Riksbank vice governor Martin Flodén will speak at an event in Stockholm hosted by Danske Bank Markets.
In the US, FOMC chairman Powell speaks in Congress again, this time in the Senate. In his speech yesterday, Powell gave no new signals, and we still expect Fed to initiate its rate cutting cycle in May.
Economic and market news
What happened overnight
In China, imports and exports for January and February rose far more than expected, signalling what may be the beginning of a turn towards greener pastures ahead for global trade. Exports rose 7.1% y/y for the period whereas imports rose 3.5% y/y. A Reuters poll showed consensus expectations amongst economists had stood at 1.9% y/y and 1.5% y/y respectively.
What happened yesterday
In the US, Nikki Haley withdrew from the republican presidential primaries. Albeit winning the state of Vermont she lost heavily overall to former president Donald Trump, whose road to the republican nomination seems to now just be a formality.
The ADP numbers for February came in line with expectations, as they showed an increase of 140k jobs whereas 150k was the consensus. On Friday we get non-farm payroll numbers for February where we expect 180k jobs created, and seasonally adjusted wage growth of 0.2% m/m.
The JOLTS numbers for January were also in line with expectations showing 8.86m job openings whereas consensus expectations according to a Reuters poll were 8.9m. December numbers were revised down from 9m to 8.89m thus indicating a virtually unchanged number since last month.
In the euro area, retail sales for January grew by 0.1% m/m (consensus 0.2% m/m) thus underlining how consumer spending remains weak. The cautiousness of consumers has also been reflected in recent weak consumer confidence numbers. We believe consumer confidence will pick up this year, which combined with a historically low unemployment should lead to higher spending.
In the U.K., Chancellor of the Exchequer Jeremy Hunt delivered the spring budget. As expected, he confirmed both a lowering of National Insurance by 2pp, as well as freezing both the fuel and alcohol duties.
Geopolitics: As the self-imposed 10 March deadline for Israel to launch an attack into Rafah looms closer, ceasefire talks with Hamas seem deadlocked. If no ceasefire is achieved and Israel launches an invasion into the southern city, it marks another escalation of the conflict, also raising the risk of more severe retaliation by Iran-backed militants in the region.
Equities: Global equities were higher yesterday in a reversal of the moves we saw Tuesday. Macro data was benign without being impressive and like on Tuesday not the driver of equities. One thing that has changed in the last two weeks is the direction of yields with both the short and long end ticking lower. This would normally fuel the appetite for growth stocks, but it has not done so recently as for the moment lower yields are just a positive for both banks and energy and hence a big part of the value space. Another winner in the benign macro, lower yields environment are small caps, and they outperformed large caps again yesterday. In US yesterday, Dow +0.2%, S&P 500 +0.5%, Nasdaq +0.6% and Russell 2000 +0.7%. Asian markets are mostly lower this morning, with Japanese stocks leading the declines for a change. US futures are lower this morning while futures in Europe are more mixed.
FI: US Treasury yields decline as Federal Reserve Chairman Powell “sticks to the script” as he stated that rate cuts will come this year, but the Federal Reserve is on hold for now. Hence, there was no new information in the statement from Powell and this was taken positively by the market.
FX: EUR/USD creeped higher yesterday amid Powell’s testimony and trades just above the 1.09-mark ahead of ECB, which we expect will not rock the boat in terms of new policy signals. Meanwhile, monetary policy speculations continue to pull JPY crosses lower with USD/JPY now around 148.50. BOC sent USD/CAD almost a full figure lower to 1.35 and has hovered just above overnight. A recovery day for Scandies yesterday in slight risk on, which broughT EUR/NOK to around 11.43 and EUR/SEK closer to our1M 11.20 target.
