Market movers today
Today we get service PMIs for a number of countries. After falling in most of 2022, they have generally shown signs of bottoming, as is the case with manufacturing PMIs.
In the US, ISM non-manufacturing is also due. It has moved higher the past two months from very low levels. Focus will also be on the employment index ahead of the non-farm payrolls release next week.
Tonight Fed members Bowman and Bostic will be speaking.
The 60 second overview
ECB: We now expect ECB to hike to 4% in July (previously we expected ECB to hike to 3.25%). Inflation remains stubbornly high in the Euro Area which was evident from the February inflation numbers. ECB’s Pierre Wunsch indicated yesterday that it was not unreasonable to expect ECB to hike to 4%. We look for Danmarks Nationalbank to follow ECB and hike to 3.60%.
Fed: Board member Christopher Waller said he would endorse a terminal rate between 5.1-5.4%, if inflation and payrolls data cool again. If not, the target range would have to be raised above this level.
Japan: Tokyo CPI inflation dropped by a little less than expected in February to 3.4% from 4.4%. Core inflation rose to 3.2% from 3%. The effect of government energy subsidies caused inflation to drop. The smaller decline may indicate that inflationary pressures in Japan continue to build.
US: Unit Labour Costs rose much more in Q4 than previously expected. ULC growth was revised up to 3.2% from 1.1% in the preliminary release.
Equities: Equities were higher yesterday despite a lift to yields on the back on yet another set of higher-than-expected CPI data. Interesting to see the yield and equity correlation shifting back into positive. This happens only because of the stronger than expected CPI data comes along with stronger-than-expected growth data. This also tells us the overheating is still the dominating investment narrative. That is also the reason why argue that the most likely scenario in the coming months is a close to zero or negative correlation between yields and equites. The sector and rotation yesterday was not easy to digest with the odd couple utilities and tech outperforming at the same time. In the US yesterday, Dow +1.1%, S&P 500 +0.8%, Nasdaq +0.7% and Russell 2000 +0.2%. Asian markets are higher this morning and the same goes for European futures. US futures are slightly lower after the rally yesterday taking place in the last hours of cash trading session.
FI: European rates ended around 4bp higher at 2.74% (Bunds) with intra-euro area spreads showing modest changes to Bunds. The market reaction to the 5.6% euro area core inflation print was relatively muted with ECB policy peak briefly touching above 4%, but ended 1bp lower on the day. We adjusted our ECB rate call for a policy peak to 4% which will be reached via a 50bp rate hike in both March and May and 25bp hike in June and July, see more in our Preview here ECB Preview – Higher for longer – now seen at 4%, 2 March. European curves steepened from the long end weighed by Austria announcing a 30y sale next week.
FX: EUR/USD back around 1.06, as the USD erased recent losses and broadly strengthened on the back of US economic data and higher US yields, which momentarily sent USD/JPY above 137. EUR/SEK and EUR/NOK both had a quiet day yesterday after significant increases on Wednesday trading at 11.13 and 11.07 this morning, respectively.
Credit: Credit markets sold slightly off yesterday where iTraxx Xover widened 4bp and Main 1bp. Following a quite long period of elevated activity, primary market took a breather yesterday with no EUR BM transactions priced.
Nordic macro
Norway. Norwegian unemployment has remained surprisingly low despite leading indicators pointing to softer labour demand. We expect the jobless rate rose moderately to 1.7% (s.a.) in February, which would be marginally below Norges Bank’s projection in the December monetary policy report. It was a huge surprise to see housing prices rise in December and holding steady in January after falling during the autumn. We expect housing prices to fall 0.2% m/m (s.a.) in February, as the effect of higher mortgage rates is not yet fully reflected in house prices. The OBOS-figures released earlier this week point to a small upside risk to our forecast.
