In focus today
The most important release of the day will be the US February CPI. We look for both headline and core CPI to come out at +0.3% m/m SA, slightly below consensus forecast. Markets will focus on non-housing services inflation, which surprised to the upside in January, cooling expectations of rapid rate cuts.
In Europe, we look out for the final German inflation data to dissect the large monthly increase in core inflation registered in February.
In the UK, the labour market report is published for January/February at 8:00 CET. Focus will be on developments in wage growth as this remains a key concern for the Bank of England. We expect to see the first rate cut in the UK in June.
In Denmark, the unemployment indicator for February is scheduled for release.
In Sweden, the Riksbank Board will participate in an open hearing by the Riksdag Committee on Finance today, starting at 09.00 CET.
Economic and market news
What happened overnight
In Japan, BoJ Governor Ueda was on the wire, stating that the economy is recovering moderately, while also emphasizing that some signs of weakness have been seen lately – especially in consumption and CapEx. In respect of the central bank’s monetary meeting next week, Ueda highlighted that whether a positive wage-inflation cycle is ongoing will be key for their monetary policy decision. On Friday, we will get a sense of this when Japan’s biggest labour union federation, Rengo, releases the first tally of pay deals. Finally, Japanese producer prices surprised to the upside, which could be another sign of underlying inflation pressures building.
What happened yesterday
In the US, data from the New York Fed showed that long-term inflation expectations climbed considerably higher. The 5Y and 3Y segments printed 2.9% (prior: 2.5%), and 2.7% (prior: 2.4%), respectively. However, one should not ring the alarm bells yet. It is notable that the 3Y January print was the lowest ever, and the current 2.7% is quite close to the pre-covid average. Moreover, this uptick follows a month where gasoline prices increased almost 5%.
Last night, President Biden presented a USD 7.3tn budget plan for 2025 in light of the upcoming presidential election. Biden’s plan would boost spending, while also saving USD 3tn by raising taxes on corporations and high-income earners – for instance reversing half of Trump’s 2017 cuts to corporate taxes by hiking the tax rate to 28% from 21% (35% prior to 2017). Despite the considerable tax hikes, the proposal would not have a major impact on near-term deficits, with the White House estimating that passing of the plan would see a deficit of 6.1% in 2025. This is precisely in line with the Congressional Budget Office’s baseline forecast from February.
In Denmark, inflation decreased to 0.8% in February from 1.2% in January. Food prices are the key driver as the February price surge from last year rolls out of the inflation measure, with food prices declining 0.4% against an expected increase of 0.4%. In contrast to the euro area, price pressures have remained in line with 2% annual inflation in the first two months of 2024.
In Norway, February inflation figures surprised to the downside, with core inflation printing 4.9% y/y (cons: 5.3% y/y). Decomposing the figures reveals that imported inflation recovered more than we had expected, albeit this was partly offset by a moderately larger drop in food inflation. The big surprise to us was service inflation. Service prices excluding rent actually tumbled some 0.3% m/m SA, due to declines in hotel/restaurants, communication etc.
Equities: Global equities started the week lower as the AI-frenzy continued to level off. Interestingly, the crypto frenzy is continuing despite equities taking a breather. Cyclicals underperformed led by tech and industrials while energy and consumer staples outperformed. VIX crept higher and is now back above 15. In US yesterday, Dow +0.1%, S&P 500 -0.1%, Nasdaq -0.4% and Russell 2000 -0.8%. Asian markets are very mixed this morning with China continuing higher and Japan lower. European and US futures are higher.
FI: Yields rose from the belly of the curve as the 5y point led the sell-off amid repricing of central bank cut expectations this year. With little specific news, the 5y point in Germany rose 4bp. Markets repriced the ECB rate cut pricing 5bp lower, relative to Friday, to 98bp this year. Tomorrow, ECB is set to complete the operational framework review. Yesterday, Bloomberg sources reported that the Governing Council is favouring leaving the minimum reserve requirement at 1%. No timing has been given for a potential announcement tomorrow, albeit we know that the non-monetary policy meeting is set to start at noon CET.
FX: Wait-and-see-mode in anticipation of today’s US CPI print. The USD held steady, breaking the depreciation streak while JPY continued to outperform G10 peers. EUR/GBP recovered some lost ground in anticipation of this week’s UK tier 1 data releases. Scandies lost some ground in muted trading.
