Market movers today
In the euro area, the first inflation figures for March will be released today with the Spanish and German HICP inflation figures. We look for a decline in inflation in both countries reflecting lower core, energy and food price inflation. The decline in the volatile energy price inflation should follow as there is less support from the base effect and as the oil price has declined during March. Lower food commodity prices should eventually also result in lower consumer food price inflation after being lifted temporarily by cold weather in the winter months. Finally, the lower core inflation reflects the early timing of Easter last year, causing low inflation in the volatile package holidays prices in March this year.
In the US, a number of Fed members including Kaplan (voter, dovish), Dudley (voter, dovish), Williams (non-voter, neutral) and Mester (non-voter, hawkish) are scheduled to speak. Recently, the speeches from Fed members have not provided much new information as the communication has been that the Fed is on track to deliver the expected three rate hikes this year. We expect a continuation of this stance. Hence, the speeches should not moves markets considerably today.
In Scandi markets, focus will be on Norwegian retail sales, which should point to moderate growth in private consumption in Q1. See more on page 2.
Selected market news
UK PM Theresa May finally triggered Article 50 yesterday. Following the triggering, the European Council President Donal Tusk issued a response letter arguing ‘the Union will act as one and preserve its interests’ in the negotiations. All of this was in line with expectations and during the day, the sterling appreciated gradually after having weakened in the early trading hours ahead of the triggering of Article 50. EUR/GBP is trading at 0.86 at the time of writing and we see potential for further GBP weakness in the near team as the negotiations begin. Over the coming 6-12 months, we expect EUR/GBP to remain caught within the range of 0.84-0.88.
ECB sources said yesterday that the ECB has been over interpreted by market participants at the latest meeting in March. Six sources in and close to the Governing Council indicated that the ECB is keen to reassure investors that the easy monetary policy is far from ending. ‘We wanted to communicate reduced tail risk but the market took it as a step to the exit’ one source said. The sources also said that banks that have been the biggest losers from negative policy rates have recently benefited from the steepening of the yield curve, so there is no urgency to give them a hand. These unconfirmed reports are in line with our view that the market pricing of rate hikes from the ECB is very premature. We expect the ECB to extend its QE purchases going into next year.
In the US, it seems that the Republicans in the House of Representatives will give the ‘repealing and replacing’ of Obamacare another try next week. This means it will take longer before the President’s focus can turn to the tax reform. However, if an agreement can be reach on this, the Republicans may also be able to reach a deal on changes to economic policy.
