Market movers today
Today’s key release is the US CPI data for December, where CPI headline inflation is likely to reach 7.0% y/y (CPI core inflation will likely exceed 5.0%). Underlying price increases have been higher than estimated for many months now so risks seem skewed to the upside. High inflation and a tight labour market with no significant rebound in labour force participation put the Fed under pressure to hike more and we are reviewing our Fed call as a result.
This morning, Norwegian GDP data for November are due out, but the figures are of a bit outdated after the omicron wave started in December.
Euro area industrial production data are due out 11:00 CET.
Tonight, the Fed’s Beige Book is due. It is not a big market mover but sometimes the report includes interesting things on the underlying price pressure and labour market developments.
The 60 second overview
Risk appetite recovers: Equities and commodities recovered yesterday on the back of some calm being restored in bond markets where US yields moved lower. The rise in oil prices to just below USD84 per barrel brings them close to the recent highs from mid-October.
Powell soothes markets: Fed governor Jerome Powell reassured lawmakers and investors that the Fed would be able to bring inflation down and do it without bringing much damage to the economy. Powell did not comment on the timing of the first rate hike but confirmed that the Fed will start winding down their balance sheet; hence quantitative tightening (QT). He did not give any hints about the timing of that either, though.
Chinese inflation declines: Chinese PPI inflation dropped more than expected from 12.3% in November to 10.3% in December (consensus 11.3%). The m/m change dropped to -1.2% m/m, the biggest decline since April 2020 just after the outbreak of Covid. CPI inflation also moved lower from 2.3% y/y to 1.5% y/y. It is clear Chinese PPI inflation pressure is easing on the back of lower commodity price inflation and it likely forestalls a similar development in US and Europe over the coming 3-6 months.
Equities: Tuesday finally brought some rebound, with European and US markets all higher. Battered growth stocks rebounded, with tech and consumer discretionary in the lead. Interestingly however, the real estate sector continued to lag, despite being one of the most sold sectors the last week. Defensives and value (that has fared relatively well YTD) lagged. S&P gradually improved over the session up 0.9%, Nasdaq bounced 1.4%, Dow 0.5% and Russell 1.1%. Asian markets are following the rebound trail this morning, with Hang Seng and Kospi both bouncing 2%. Likewise, US futures point slightly higher.
FI: The main event today is the US inflation data for December, where the headline inflation is expected to reach 7% y/y and core-inflation 5.4% y/y. However, the core-inflation is expected to decline from 0.8% m/m to 0.4% m/m. Still, a lower m/m number should not change much on the pricing of the Federal Reserve as they need more than one number to change their view on QT and rate hikes.
FX: USD weakened against most of the G10 currency sphere yesterday, where Scandies and commodity currencies came out on top. EUR/NOK fell below the 10.00 level and EUR/SEK dropped to around 10.28.
Credit: Credit markets were more constructive yesterday in spite of heavy primary activity. iTraxx Main tightened 0.9bp to 50.7bp while Xover tightened 6.1bp to 250.8bp.
Nordic macro
Today brings Norwegian GDP data for November, were we expect mainland growth recovered to 0.5% m/m after being pulled down for technical reasons in October. Figures are of course a bit outdated after the omicron wave started in December, so market reaction should be limited.
