Market movers today
It’s finally time for the US CPI, a key data point for the Fed’s decision on 1 February of whether to hike by 25bp or 50bp. Lower gasoline and food prices will likely weigh on the headline (0.0%), but services should continue to support core (0.3%). Manheim index signals that used car prices have surprisingly increased modestly, so core goods could have less negative contribution on core than what has been the case over the past couple of months.
US also releases initial jobless claims and the Fed’s James Bullard is set to speak at 17.30, CET hence after the CPI release.
The ECB publishes the Monthly Bulletin as well as Consumer Expectations Survey.
In the Nordics we get Norwegian mainland GDP for November and Danish unemployment for December. For more information see the Nordics section.
The 60 second overview
Ahead of US CPI: markets have been in a wait-and-see mode for the majority of the week amid several Fed members pointing to today’s CPI release as decisive for whether the Fed will hike policy rates by 25bp or 50bp at the next monetary policy meeting early February. Market sentiment has been slightly tilted towards a low print following a range of data lately suggesting that inflation has peaked. This in turn has contributed to lifting equities and sending both nominal and real rates lower. Markets price roughly 30bp worth of Fed hikes for the upcoming meeting – we still lean towards 50bp – highlighting how a higher inflation print today would have bigger market implications than a low print.
Chinese inflation figures released overnight showed a sharper-than-expected drop in producer prices (heavily commodity driven) while consumer prices accelerated in line with expectations in y/y-terms. Historically, a lower Chinese PPI-CPI inflation differential has coincided with lower global inflationary pressures.
Market moves this morning have been very limited although the majority of the big Asian equity indices have followed their US counterparts into green territory. Oil prices have sustained the rallies from yesterday’s session as Brent crude now again trades solidly above USD 80/bbl.
EUR/USD rise: the combination of markets pricing in a lower peak in US policy rates, ECB maintaining a hawkish tone, European natural gas prices having been more than halved over the last month and China re-opening optimism have sent EUR/USD spot almost 3 figures higher over the last week. We highlight that a lot of optimism now seems priced into the single currency which suggests an asymmetric sensitivity to negative news going forward. Our base case still entails a lower EUR/USD when looking 3-6M ahead.
Japan: Overnight the Yomiuri newspaper brought the news that Bank of Japan at next week’s policy meeting will review the side-effects of its ultra-easy monetary policy stance as well as recent bond moves. While unconfirmed the news still sent JPY rates higher and USD/JPY lower as markets now put a higher probability of Bank of Japan already next week tweaking its yield-curve control setup further. In December the central bank lifted the cap on the trading range for the 10Y JGB from 25bp to 50bp which marked the beginning to the end for the ultra-easy monetary policy stance which, as the only G10 central bank, Bank of Japan pursued doing 2022. Any change of policy would also be important for global markets as higher JPY yields could return Japanese investors to the domestic market and hence drive an upward pressure on global yields.
FI: Sentiment turned very bullish for bonds yesterday with a dramatic decline in bond yields ahead of the US CPI data for December. Some surveys indicate that market participants expect inflation to come in lower than expected. This should be supportive for the bond market.
FX: EUR found a broad based bid yesterday. Most notably EUR/CHF climbed above parity again, but EUR/JPY rose above 142 and EUR/USD held steady above 1.07. EUR/SEK rose close to 11.30 again.
Credit: The constructive market backdrop returned yesterday where Xover tightened 10bp and Main 2.2bp, closing in 415 and 80bp, respectively. The upbeat sentiment was also visible in primary where new deals were priced at modest new issue concessions.
Nordic macro
Norway. Norwegian growth has held up surprisingly well given the headwinds from strong cost growth, rapid inflation and higher interest rates, and has also been better than predicted by leading indicators. Stronger-than-expected growth in consumption in particular, but also higher business investment and mainland exports, have been the main drivers. We expect much of this picture to be intact in November, and that mainland GDP rose 0.1% m/m.
Denmark. The labour market indicator from Statistics Denmark will provide the first glimpse of unemployment in December. There is not much sign of unemployment actually beginning to rise yet, even though both companies and we expect this will happen soon.
