In focus today
The week starts out without any major data releases today. ECB president Lagarde and Fed’s Bostic and Cook will speak today.
Later this week we look out for local inflation prints from Spain, France, and Italy that will give clues of where we can expect the euro area HICP print on Wednesday next week to come in. The PCE inflation from the US is due on Good Friday. The Central Bank of Hungary will announce its monetary policy rate decision on Tuesday.
Economic and market news
What happened over the weekend
In Russia a terrorist attack took place Friday night near Moscow. More than 130 people are confirmed dead, and more than 180 persons were wounded in the attack. The Islamic militant group Islamic State has claimed responsibility for the attack, however, Kremlin seemed eager to involve Ukraine in at least being partly responsible for the attack. Ukraine as well as American intelligence service have denied that Ukraine had any role in the attack. Russian President Putin claimed Saturday that the attackers were caught trying to escape to the Ukrainian border, not mentioning Islamic State in connection with the attack.
In Poland, a Russian missile violated Polish airspace early Sunday. The violation happened after Russia launched a massive air strike between Saturday and Sunday broadly on Ukraine including Kyiv and the western Lviv region bordering Poland. Polish and allied aircraft were activated early on Sunday as a reaction. The Polish government has demanded an explanation from Russia.
In the US, President Biden signed a USD 1.2 trillion spending bill to keep the US government funded and avoiding a partial government shutdown, which did not come as a surprise. The bill was signed after Congress voted in favour of the bill early Saturday. These bills fund only the government and are separate from, for example, the package including further support to Ukraine.
What happened Friday
In the US, Fed’s Bostic (voter) said that he now expects only one 25bp rate cut in 2024, instead of the two cuts he had projected earlier, sounding quite hawkish on inflation, saying that he is less confident than in December that inflation will fall to Fed’s 2 percent target. The 2024 dot plot signals three rate cuts, in line with our forecast, with the Fed delivering the first rate cut at the May meeting.
In the euro area, ECB’s Centeno said that “We are at the end of this inflationary process.” “Inflation is back at levels below 3% – monetary policy has to follow that reality as is evident, and will do it.” ECB’s Scicluna spoke as well and would not leave out a rate cut already in April. Both have typically leaned dovish. We still consider June close to a done deal for the first rate cut.
In Germany, the March Ifo print rose more than expected to 87.8. Despite the higher than expected number, Ifo is still at a very low level indicating a weak German economy. The assessment of the current situation rose to 88.1 (cons: 86.8, prior: 86.9) and expectations rose to 87.5 (cons: 84.7, prior: 84.1). The rise in expectations and the business situation give some ray of light for the economy but we still expect it to be weak near-term likely with another quarter of negative growth in Q1 2024.
In Japan, the largest union group Rengō says average wage hike was seen at 5.25% after the second tally. This is only slightly lower than the first tally, indicating that wage growth is more broad-based and supporting the BoJ’s narrative for exiting NIRP. That said, two tallies more are ahead and smaller businesses are not a part of the data yet.
Equities: Global equities were marginally lower last Friday, dragged down by US markets despite some of the US heavy-weight sectors such as tech outperforming and Nasdaq ending higher. Friday weakness did not change yet another strong week for equities, up 2%, with cyclicals outperforming defensives by 2%, momentum outperforming the market by 2% and min vol underperforming. Small cap was in line with large cap as the two narratives of ‘soft landing’ and ‘high-for-longer’ were basically a neck-to-neck last week. In the US on Friday, Dow -0.8%, S&P 500 -0.1%, Nasdaq +0.2% and Russell 2000 -1.3%. Asian markets are mostly lower this morning though India and China are both higher. US and European futures are mostly lower.
FI: The bond markets is becoming more convinced regarding the first rate cut from the global central banks after last week’s central bank meeting. The consensus is gathering around June on the back of comments from both ECB and Federal Reserve. This also drove the rally on Friday where European bonds yields decline, Bunds outperformed EU semi-core and periphery as well as Bund ASW-spread which widened after the prolonged tightening.
FX: After an eventful central bank week last week that included both a historical rate hike (BoJ) and a rate cut (SNB) within the G10 sphere the most notable development was still the strengthening of the USD and the sell-off in the CNY. The ‘greenback’ ended the week as the clear winner in Major’s space and EUR/USD is back to the 1.0800 level after having almost reached 1.0950 after the FOMC meeting. CNY fell sharply towards the end of last week amid speculations of the authorities allowing for a weaker CNY but this morning USD/CNY has fallen back towards 7.20 amid a lower-than-expected fixing. Both SEK and NOK had a poor week with EUR/SEK and EUR/NOK trading above 11.40 and 11.65, respectively.
