Market movers today
The delayed German January inflation figures are on the agenda today. The consensus and our expectation is a temporary rebound in headline inflation on the back of higher energy inflation, after the one-off government subsidy from December falls out of the calculation. However, there is significant uncertainty about how the statistical office will take account of the electricity and gas price brake. A figure above 8.6% for German HICP leaves risks of upside revisions for the final euro area January HICP print.
In Sweden, a rate hike of 50bp today is widely expected. We also expect another 25bp in April, see below.
The weekly jobless claims in the US might be worth keeping an eye on, given the intense focus on the labour market from the Fed. So far, jobless claims have not shown any signs of increasing.
The 60 second overview
Fed speak: Yesterday, we heard some more hawkish comments by FOMC members. Kashkari noted that most members expected the rates to rise above 5%. Williams echoed these comments saying that a 5-5.25% level is a reasonable view for a peak rate. Waller said continued upward pressure on inflation comes in part from the tight labour market. He also pointed that rates may stay higher for longer than some are currently expecting.
Riksbank: We expect the Riksbank to lift the policy rate by 50bp to 3.00% and that the new policy rate path will guide for another c.25bp later this spring (we expect a 25bp hike in April). This would also be in line with current market pricing. Markets however expect the policy rate to be cut already from September, which is perhaps the most pressing issue for the Riksbank if they want to tighten financial conditions. The Riksbank had a relaxed stance to the weakening SEK during 2022, but have voiced more concerns as of late given the poor start of 2023 and new highs in EURSEK. We believe the Riksbank may address the weak krona in some form, but also note that they are quite limited in what they can do. The Monetary Policy Report with new projections will be released in conjunction with the decision at 9.30 CET. New Riksbank Governor Erik Thedéen will hold a press conference at 11.00 CET (in Swedish). The policy rate becomes effective Wednesday 15 February. For a full preview, see Reading the Markets Sweden, 3 February.
Turkey-Syria earthquake: The death toll from this week’s earthquakes that took place in the border region between Turkey and Syria has risen to 14,000. Apart from the human suffering, the earthquake and its aftermath could have important implications for Turkey’s domestic politics. General election, where both the president and parliamentary members are to be elected, will be held in mid-May. Erdogan who has been ruling the country for two decades, is now for the first time during his reign, facing a real test as his support has fallen to all-time lows. Same time, six opposition parties have joined forces and are due to announce their joint candidate in mid-February. Erdogan’s rise to power in 2002 elections has been linked to the earthquake in 1999 near Istanbul, where 18,000 people were killed. At the time, government’s slow response and inadequate preparations led to public criticism and ultimately paved the way for a new regime. This time, the public will again evaluate the rescue and reconstruction efforts, whether building codes have been complied with, and whether there was sufficient preparation and readiness to respond at the government level.
FI: The Federal Reserve continues to tell the market that they are not done yet given a string of comments from various Fed officials. However, the US Treasury market is not really “listening” as US Treasury yields declined 3-5bp across the curve. There has been modest movement in the European bond yields on the back of the announcement from ECB about giving government deposits €str-20bp rather than just €str or the ECB deposit rate. The Schatz ASW-spread widened modestly, while Bund ASW-spread tightened modestly.
FX: USD, GBP and CHF were top performing G10 currencies, where AUD, NZD and JPY were the biggest losers on a day where rising US rates set the tone in markets. NOK finally found a bid supported by the rise in oil prices. EUR/NOK dropped towards the 11.00 level again.
Credit: Yesterday, credit markets saw a slightly mixed day with both CDS indices closing marginally wider with iTraxx Main (+0.8bp) at 76.2bp, while iTraxx Crossover (+2.3bp) closed at 399.9bp. The primary Eurobond market was still very active with 19 borrowers raising debt where Volvo Treasury AB, General Motors Co., and ING Bank were among the largest announced deals.
