Market movers today
A fairly quiet day on the global data front. The Philly Fed index will give more insights about the performance of the US economy in February, while a range of ECB and Fed speakers are on the wires during the day.
In Norway, Norges Bank’s Q1 expectations survey will be important, especially the expectations regarding wages and prices. We also look forward to the Q1 oil investment survey. Central bank governor Ida Wolden Bache’s annual address will be a golden opportunity to shed more light on the balancing act currently facing Norges Bank.
Riksbank deputy governor Per Jansson speaks on monetary policy (08:30). He will likely stick to the ‘Riksbank script’ until the minutes have been published (on Monday). That said, markets may be sensitive to signals or hints of a personal bias, as he is one of the hawkish members.
The 60 second overview
US: The 10y UST yield rose above 3.8% before easing modestly late in yesterday’s session, as markets continue to price in tighter financial conditions amid upbeat US macro data. January retail sales came out clearly above expectations, with core sales (excl. motor vehicles & gas stations) rising by 2.6% m/m. While warm weather likely contributed to the upside surprise, sales recovered broadly across all main sectors, which is consistent with the earlier positive signals from leading indicators. The strong momentum appears to have continued in February as well, as NAHB housing market index and NY Fed’s Empire Manufacturing index also surprised to the upside. Notably, the prices paid index of the latter rebounded from January lows to 45.0 (above pre-covid average of 26.9). For now, we stick to our call of Fed terminal rate at 5.00-5.25% and no cuts this year.
Global inflation watch: While the recovering macro indicators point towards lower recession risks in the near-term, they also increase the risk of underlying price pressures prolonging from here. In our latest monthly Global Inflation Watch – High services inflation remains a worry for central banks, 15 February, we highlight how core inflation pressures remained sticky in January both in the euro area as well as in the US.
US Budget outlook: The bipartisan US Congressional Budget Office (CBO) warned yesterday that the US treasury could exhaust its ability to pay all its bills between July and September unless the debt ceiling is lifted, or even earlier if the tax revenues in April are lower than expected. The outlook is roughly in line with previous estimates, and while we do expect the ceiling to eventually get lifted, the negotiations are likely to go down to the wire. CBO also warned about the longer-term budget outlook, as the total budget deficit is now seen averaging 5.9% of GDP in 2023-2032, 0.9%-points higher than in the previous May estimates.
Equities: Equities were higher yesterday as key US macro data came in very strong. Data not 1-1 linked to prices and inflation and yields took a breather yesterday. With the combination of strong macro data and limited yield moves, we had all that was needed to bring cyclical outperformance in a classic late-cycle fashion. At sector level, more sectors were lower than higher but as heavy weight tech, consumer discretionary and industrials were higher it was enough to lift most indices. In US Dow +0.1%, S&P 500 +0.3%, Nasdaq +0.9% and Russell 2000 +1.1%.
The positive sentiment continuing in Asia this morning with indices rising the most in a month. US and European futures higher as well this morning.
FI: Yesterday, ECB’s Lagarde once again affirmed a 50bp rate hike in March as the price pressure remains high. The comment was made during a speech to the EU parliament. Given earlier comments from other ECB officials, it supports the view that ECB is not done hiking after the March meeting given the current inflationary pressure.
European yields and interest rates also rose yesterday, but this time it was driven more from the long end of the curve given the long end supply from Belgium as well as the upcoming 30Y deal from Italy, that was announced yesterday.
FX: Benign risk sentiment in Asia supports Scandies and EUR/USD is back at 1.07. JPY found some support earlier in this week on the news that Kazuo Ueda had been nominated new head of Bank of Japan, but since then USD/JPY has ventured higher again and is now closing in on January highs, currently the loser within G10 space in February, closely followed by GBP that continues to struggle.
Credit: The EUR credit market benefitted from the overall positive risk sentiment yesterday where iTraxx Xover tightened c.6bp (closing below 400bp) while Main tightened 1.4bp and closed in 75.7bp.
Nordic macro
Sweden: Riksbank deputy governor Per Jansson speaks on monetary policy (08:30). He will likely stick to the ‘Riksbank script’ until the minutes are published (on Monday). That said, markets may be sensitive to signals or hints of a personal bias given him being one of the hawkish members on the board.
Norway: Norges Bank’s Q1 expectations survey will be very important in the current situation. It is a fairly safe bet that expectations for this year will be at least as high as in the previous survey. Particularly interesting will be what level of wage growth the unions envisage. We also look forward to seeing where expectations for next year come out in terms of both wages and prices. Expectations peaking this year and falling next year are an important premise for a reduced risk of persistently high inflation. Central bank governor Ida Wolden Bache’s annual address will be a golden opportunity to shed more light on the balancing act currently facing Norges Bank. We would also love to hear the bank’s view on whether the long-term neutral real interest rate has changed. Last autumn, the bank estimated that it was between -0.5% and +0.5%. Finally, the Q1 oil investment survey will probably indicate a significant lift in oil investments in 2023, but this has probably already been discounted by most forecasters.
