Market movers today
- A quiet start to the week in terms of economic data. The most important release will be the February inflation numbers from Sweden, where we forecast CPIF inflation at 1.8 % y/y (see more details in Nordic Macro and Markets section below).
- Later this week the focus will be on central banks. Fed will meet on Wednesday and we expect no major changes, focus on updated dots and any comments on the rise in real yields.
- Bank of England will have an interim meeting on Thursday, we do not expect new policy signals. Norges Bank will also meet on Thursday, we expect the updated rate path to signal the first rate hike already in September 2021. Finally, we do not expect major changes from Bank of Japan’s monetary policy review on Friday.
The 60 second overview
Chinese data: Industrial production and retail sales growth rates jumped to 35% and 33%, respectively, but this is more due to base effects after the slump last February when the Chinese economy was closed down. Compared with January, retail sales only grew 0.56%, which may be due to the Chinese New Year having less of an expected boost to consumption.
German election: The Green party emerged as a clear winner of the two regional votes yesterday as Merkel’s party CDU suffered defeat. This calls in doubt whether the party can maintain the chancellorship at the general election in September.
US inflation risk: US Treasury Secretary yesterday played down inflation risk seeing the risk as small and manageable. We expect inflation to climb higher in the coming months due to base effects but then retreat later in the year, despite the fast economic growth generated by fiscal stimulus and reopening of the US economy.
Equities: A calm trading session on Friday concluded a very buoyant week. Defensives outperformed though and value took the lead after a pause on Thursday. US markets finished mostly higher, with Dow up 0.9%, S&P 500 0.1%, Russell 2000 0.6% (all making record closes) but Nasdaq -0.6% lower. Tech and communication services were the only decliners. Despite rising yields, real estate was the best performing sector (and up 6% for the week), along with banks and capital goods. Asian equities are mixed this morning but S&P 500 and Nasdaq futures indicates another green opening.
FI: Yields rebounded strongly on Friday mainly driven by the rise In USD rates, and the impact on EUR rates. The rise in rates was mainly driven by the long-end of curve, while there was only very limited impact on the front end. Comments from US Treasury Secretary Janet Yellen should support the bond markets as she stated that inflation risks should be manageable and under control. Hence, now we await the statement from the Federal Reserve’s FOMC meeting on Wednesday in a week filled with Central Bank meetings from Bank of England, Bank of Japan as well as Norges Bank.
FX: Friday was a quiet day in FX space with limited interesting movements. For EUR/USD the main drivers continue to be the daily move in US yields as well as relative data surprises. We will listen closely to what Powell & Co have to say on Wednesday although we expect them to strike a dovish tone. We expect neither the BoE nor the Norges Bank meetings this week to be big events for GBP and NOK, respectively. We do not expect Danmarks Nationalbank’s technical overhaul of its policy rates will lead to a big market reaction when the changes come into effect on Friday.
Credit: iTraxx Xover widened 5bp on Friday (to 242bp) and Main closed ½bp wider in 47bp. Cash bond movements were subdued, with both IG and HY ending the day around 1bp tighter.
Nordic macro and markets
Regarding the February inflation numbers from Sweden, we forecast CPIF inflation at 1.8 % y/y, 0.2 p.p. below Riksbank’s forecast. However, CPIF excl. Energy is expected to print 1.5 % y/y, the same as Riksbank. Main contributors to the monthly increase are food (0.15 p.p.), clothing (0.11 p.p.), electricity (0.08 p.p.) and car fuel (0.10 p.p.).
