In focus today
US December Private Consumption Expenditures (PCE) data will be released today. Strong holiday spending and modest inflation suggest that real consumption volume continued to grow at a solid pace. On the inflation side, consensus sees Core PCE inflation at +0.2% m/m SA (from +0.1%).
We will get the December release of Norwegian retail sales. Retail sales picked up in November partly due to some ‘Black week’-effects. Still, it seems as Christmas shopping held up in December as well, so we expect retail sales rose 0.2 % m/m.
We will also get retail sales from Denmark.
A triplet of December data is out from Sweden this morning including the labour force survey, foreign trade balance and household lending. The first two will give important input to the development of Q4 GDP, the latter should add colour about lending growth but we doubt there will be any signs of acceleration yet.
We wish you a happy Friday and a good weekend!
Economic and market news
What happened overnight
From Japan, we got Tokyo CPI Ex-Fresh Foods for January. The figure fell from 2.1% in December to 1.6% in January, which was lower than market expectations at 1.9%. It is the first time in 20 months that the number is below 2%. Earlier this week the Bank of Japan (BOJ) governor Ueda signalled that monetary policy would be tightened this year. However, if inflation continues easing it would give BOJ incentive to move more cautiously.
What happened yesterday
ECB kept policy rates unchanged at yesterday’s policy meeting in line with both ours and the market expectations. President Lagarde said that it was still too early to discuss rate cuts. On the other hand, she also sounded soft on inflation and wage pressures. Markets reacted by adding to rate cut expectations for the April meeting (23bp priced vs 16bp prior to the meeting). We stick to our call of the first rate cut in June, albeit highlighting our long-held risk bias for an April meeting cut, for more details see ECB review – Didn’t rock the boat, but sailing towards a rate cut, 25 January
Norges Bank kept policy rates unchanged as expected on Thursday’s policy meeting, which was fully in line with expectations. Norges Bank signalled that policy rates will likely be kept at that level for some time ahead. As expected, Norges Bank kept the door open to further hikes as the economic outlook is broadly unchanged relative to the last meeting in December. We expect NB to keep policy rates unchanged in March and deliver five rate cuts this year starting with the monetary policy meeting in June.
US flash GDP growth came in at 3.3% Q/Q (annualized) in Q4, markedly above consensus expectations at 2.0%. This marks another clear upside surprise on the US macro data front. Recent data releases (GDP, Retail Sales, PMIs) all suggest that the US economy remains in a solid state. US yields edged lower over the afternoon, likely reflecting other factors such as the dovish ECB signals and the uptick in weekly jobless claims (For more details see Research US – Fed preview: Patience & gradualism, 26 January.
The Central Bank of Turkey hiked its policy rate by 250bp to 45% as expected. The committee now assesses that the monetary tightness required to establish the disinflation course is achieved and that this level will be maintained as long as needed. Hence, we do not expect further rate hikes but rates will most likely remain high for some time.
German Ifo was weaker than expected in January like the PMIs yesterday. Current assessment fell to 87.0 (cons: 88.5, prior: 88.5) and expectations fell to 83.5 (cons: 84.8, prior: 84.2). The price expectations rose across services, manufacturing and namely retail.
Equities: Global equities were higher yesterday, with several indices in both Europe and the US closing near session highs. There was a lot of macro, monetary policy, and earnings information to digest, but the combination of a strong US GDP report and the absence of push-back to market pricing from Lagarde ended up setting the tone for equities. The negative standout was consumer cyclicals, which was dragged down by Tesla after disappointing earnings the day before. As a softer tone on the central reemerged and yields came lower, it boosted the appetite for small caps after a couple of weeks with large caps outperforming. In the US yesterday, Dow +0.6%, S&P 500 +0.5%, Nasdaq +0.2%, and Russell 2000 +0.7%. Asian markets are mostly lower this morning, with South Korea going against the trend. European futures are higher, while US ones are lower.
FI: European rates rallied from the front end, with 10y Bunds ending the day 7bp lower on the back of the ECB press conference. 10y Bunds reached 2.36% intraday before reacting to the ECB decisions and ended the day at 2.29%. Markets added 8bp of rate cuts to the end-2024 pricing, now pointing to 140bp this year.
FX: A dovish reading of the ECB decision and press conference pulled the EUR lower across the board including EUR/USD below 1.0850, EUR/JPY toward 160 and sent EUR/NOK and EUR/SEK closer to 11.30. Our long NOK/SEK trade from FX Top Trades 2024 breached parity and is 4.1% in the money. Meanwhile, EUR/DKK fell to 7.4550.
. We stick to our call of the first rate cut in June, albeit highlighting our long-held risk bias for an April meeting cut, for more details see ECB review - Didn't rock the boat, but sailing towards a rate cut, 25 January){kind=link}