Market movers today
Today’s market highlight will be the US CPI print for January. We forecast core CPI at 0.4% m/m, which is on the upper end of consensus forecasts. An upside surprise to 0.5% m/m or above would mark a clear upturn in the broader underlying inflation pressures and could take EUR/USD another leg lower (read more in Research US – Soft landing to no landing?, 9 February). We will also hear from Fed’s Harker and Williams later today.
In the UK the jobs report for December is on the agenda. Although Bank of England has signalled it is nearing the end of its hiking cycle, a still tight labour market and sticky wage pressure could keep it from pausing just yet.
In Norway and Denmark GDP figures for Q4 2022 will be released.
The 60 second overview
Fed survey shows drop in wage expectations: The monthly New York Fed survey of consumer expectations showed a drop in median expectations for income growth to 3.3% from 4.6% suggesting that wage pressures may be easing. 1-year inflation expectations were unchanged at 5.0% while the 3-year inflation expectations dropped from 2.9% to 2.7%. It is a slightly better picture than what the survey from University of Michigan showed on Friday, where 1-year inflation expectations increased a bit. However, the probability of losing a job dropped to 12.0%, still below the pre-pandemic average around 14.5% and in line with other indicators showing a robust employment picture.
US and China weigh meeting in Munich: US and China consider a meeting between Secretary of State Anthony Blinken and China’s top foreign diplomat Wang Yi at the side lines of the Munich Security Conference starting on Friday. It would be the first face-to-face meeting since the shoot-down of the alleged Chinese ‘spy balloon’ 10 days ago. While a meeting would likely be tense, it would be positive to see a willingness to resume dialogue from both sides. It is still unclear if a meeting will be put in place, though. US Deputy Secretary of State Wendy Sherman yesterday said that “we are open to dialogue when it is in our interest to do so and we believe the conditions are right”.
Fed Vice Chair Lael Brainard to be top adviser for Biden: A source close to the White House reports that Brainard has been picked to head the National Economic Council in the Biden administration, leaving a new open seat in an influential role at the Fed.
NATO says Russian offensive is under way: NATO Chief Jens Stoltenberg yesterday backed reports that a major new Russian offensive had begun with the city of Bakhmut under heavy shelling. “We see how they are sending more troops, more weapons, more capabilities,” Stoltenberg said. Defence ministers from several NATO countries will meet in Germany on Tuesday to discuss possible further military aid.
Equity optimism returned yesterday with indices in Europe and US cruising higher before close. No surprise to see the group of cyclical growth companies leading advances on a day when sentiment slowly but steadily improved during the day. Investor positioning has changed a lot in the first six weeks of 2023 but the pain trade is still higher as it takes time for people to leave the expectation of a near-term recession. In US Dow +1.1%, S&P 500 +1.1%, Nasdaq +1.5% and Russell 2000 +1.2%. Asian markets are catching this morning with most market higher while European and US futures are slightly lower.
FI: Global rates were mostly range trading through the day, amid a few central bank comments. The 10y point ended broadly unchanged on the day across European jurisdictions. Markets added more tightening on ECB pricing which is now priced to a peak policy rate at 3.65% from currently 2.5%. Generally curves bear flattened, with the 2y ending 2bp higher at 2.77% (Germany). The EC followed the general upward revisions from market participations of growth outlook in the euro area by 0.6pp to 0.9% for 2023 – and lower inflation by 0.5pp to 5.6%.
FX: Overnight, Kazuo Ueda has been nominated new head of Bank of Japan, and the Yen strengthens somewhat on the back of this news. The USD is weakening slightly in anticipation of today’s US CPI report, which should stake out direction both for FX but also risk near-term. EUR/USD once again above 1.07 and Scandies gaining a tad as well.
Nordic macro
Norwegian GDP growth was much stronger than expected towards the end of last year. Although we expect it to slow in December, with mainland GDP falling 0.2% m/m, this would still give solid growth of 0.7% q/q for Q4. That said, it will be worth keeping an eye out for any revisions of previous data, as these can sometimes change the picture quite considerably.
In Sweden, Riksbank governor Erik Thedéen will speak at a seminar on the current economic situation and monetary policy. Given that the minutes will not be released until 20 February, he will have to stick to the official script from last week’s MPR. That said, the market will likely be attentive to any flash comments from the seminar.
