In focus today
In the euro area, we receive the final national accounts data for Q4, where attention will centre around the first release on hours worked and private consumption.
In the US, focus turns to the February Jobs Report. We forecast NFP growth to slow down to +120k (Jan. +143k) due to negative seasonality, federal layoffs and slowing immigration constraining the growth of labour supply.
In Denmark, January’s industrial production figures are due, following a 4% increase in December, resulting in 8.6% annual growth in 2024. Unlike the broader European trend, Danish manufacturing remains strong, even excluding pharmaceuticals.
In Norway, January’s manufacturing production figures are released. After a significant drop following the summer of last year, we experienced a sharp correction on the upside in December. Relatively weak leading indicators, such as the PMI and the Confidence indicator, mean that this may look like noise. The January figures will therefore provide us with important information on whether we will see a lift in activity into 2025 or if the leading indicators are correct.
In Sweden, the market will continue to digest the implications of the second consecutive monthly upside surprise to inflation which has lifted both CPIF and CPIF excl. Energy way above Riksbank’s forecasts. This morning, the Debt Office releases the February borrowing requirement. So far, DO borrowing has been close to SEK 18bn higher than forecast in the November outlook.
China releases CPI for February on Sunday which is expected by consensus to drop to -0.4% y/y from 0.5% y/y in January. It will likely create some deflation headlines, but it is mostly due to effects from the Chinese New Year, which lifted some prices in January that then fall back in February again. Still no doubt, price pressures are still low in China. PPI is expected to stay in deflation with a drop of 2.1% in February from -2.3% in January.
Economic and market news
What happened yesterday
In the euro area, the ECB lowered its monetary policy rate by 25bp from 2.75% to 2.50%, as expected. Market focus is now on future meetings, with some ECB members expressing doubts about further rate cuts. The key here is the central bank’s statement suggesting monetary policy is less restrictive, hinting that the end of rate cuts may be near, but uncertainty remains due to geopolitical tensions and economic factors. Inflation trends downwards, but low inflation could still be a concern. We expect the ECB to continue rate cuts at every meeting until September, lowering the rate to 1.5%, which is below market expectations. However, uncertainty has increased in the light of fiscal policy uncertainty in Europe.
In the US, initial jobless claims data fell -21k to 221k in March, thus coming in well below market expectation. Recurring claims rose 42k to 1.897m in the same period, close to expectation. This indicates that the US continues to host a relatively tight labour market.
In China, imports surprised to the downside, shrinking 8.4% in February, well below market expectations of an increase of 1%. Exports grew 2.3%, also below market expectation of 5.0%. The numbers reflect escalating trade tensions with the US as well as subdued activity during the Lunar New Year festival.
In Sweden, the topside surprise for flash CPIF ex energy (3.0% vs consensus, DB 2.7% and RB 2.4%), sent EUR/SEK further below the previous support area around 11.00. The market is increasingly drawing the conclusion that the Swedish easing cycle is over and done. That said, the main drivers for the krona recently are related to geopolitical events and potential US-EU rotation flows alongside US-Europe rates convergence, which we have discussed extensively in recent Reading the Markets Sweden. In all, it is hard to argue that the larger-than-anticipated SEK recovery vs the USD (and the EUR) is not aligned with the recent shift in fundamentals.
In Denmark, February’s bankruptcy statistics showed an 8.8% decrease in bankruptcies compared to January. This corresponds to a decrease of 0.8% m/m in the 12-month moving average. The number of bankruptcies today is on par with the levels we saw in the years leading up to the pandemic, thus not ringing the alarm bells. Furthermore, following ECB’s rate cut, Nationalbanken cut its key rate by 25bp bringing it to 2.10%, thereby keeping the yield spread fixed.
In geopolitics, President Trump has temporarily delayed import tariffs for all USMCA-compliant goods for Canada and Mexico under a new North American trade pact. The exemption is effective until 2 April. Earlier announced import tariffs of 25% on steel and aluminium are still scheduled to take effect on 12 March. On another note, Russia has warned French President Emmanuel Macron against using nuclear rhetoric and rejected European proposals to send NATO peacekeepers to Ukraine, viewing them as confrontational.
Equities: Global equities declined yesterday, led by the US, while Europe posted gains. This trend is familiar, as Europe has consistently outperformed the US year to date, a fact now widely acknowledged. However, there is more to this narrative. At least three significant forces are at play, and this does not include the ECB, who’s meeting yesterday was uneventful. The focus is on US and European politics, which are moving in opposite directions. Investor confidence in politicians is shifting from the US to Europe – a trend that has just begun and may continue for some time. Furthermore, the macroeconomic environment remains stable, prompting investors to consider whether US politics will alter this situation. This has been the primary question for the past two weeks and will remain so in the coming period.
While headline figures for major equities highlight the current disparity between the US and Europe, the movements within underlying sectors reveal a more complex picture. In Europe, cyclical stocks are advancing, while defensives are declining, with industrial-related sectors outperforming due to anticipated infrastructure spending. Banks are significantly outperforming REITs with the two sectors find themselves at opposite ends of the performance spectrum, driven by the substantial rise in yields, which benefits banks but adversely affects REITs.
Conversely, in the US, defensives outperformed cyclicals by 2% yesterday and nearly 9% over the last month. Despite the perception that US equities are plummeting, it is important to note that defensive stocks have gained over the past month. This reflects the uncertainty associated with Trump’s political approach and the fact that the macroeconomic environment has not deteriorated drastically. If the macroeconomic situation were truly weak, defensives would also be selling off. In the US yesterday, the Dow was down 0.99%, the S&P 500 fell by 1.8%, the Nasdaq declined by 2.6%, and the Russell 2000 decreased by 1.6%. This morning in Asia, the European/US dynamic described could be applied to Asia as well. Although the politics differ in form, goals, and intentions, the outcomes and conclusions regarding the starting point and potential for growth remains and equity markets the same. Consequently, Chinese and China-related equities are higher this morning, while Japanese equities are under pressure from the strong yen. European futures are lower this morning, aligning with the US movements after the European cash close yesterday. Meanwhile, US futures are higher.
FI: Rates markets recorded yet another volatile session yesterday, after the brutal sell-off on Wednesday. 10y Bunds touched above 2.9% in the morning but ended the day at 2.83% after a “last minute rally”, which was just a couple of bp higher than Thursday’s close. The ECB meeting yesterday was slightly more hawkish than expected, leaving all options for April, where we do not identify a preferred option at this stage. Markets are pricing 12bp for the April meeting and 44bp seen through the end of the year. Markets have repriced the terminal rate 20bp higher this week.
FX: EUR/USD has largely stabilized around the 1.08 mark following this week’s rally, driven by the seismic shift in fiscal spending in the euro area. As expected, the ECB meeting had a limited impact after the widely anticipated 25bp rate cut. The topside surprise to Swedish inflation sent EUR/SEK further below the previous support area around 11.00. EUR/CHF erased some of Wednesday’s significant gains alongside USD/JPY breaking back below 148. GBP continues to struggle in an environment characterised by elevated uncertainty and high volatility.
