In focus today
- We have a light schedule on for today.
- In the US we receive initial jobless claims.
- The central bank of the Czech Republic announces its policy decision. A Reuters poll expects a 25bp cut in the repo rate to 6.50% from 6.75%.
- In Sweden, Governor Thedéen from the Riksbank will be speaking at a closed event. Deputy Governor Per Jansson will visit London and give a lecture on the economic situation and current monetary policy.
- Fed’s Barkin will be speaking twice, at 14.30 CET and 18.05 CET.
Economic and market news
What happened overnight
In China, we received both CPI and PPI data for January. The numbers showed Chinese consumer prices fell by 0.8% y/y (expectations: -0.6% y/y). That marks the fourth month in a row with a negative print y/y. The negative Chinese inflation is however to a large degree driven by lower food prices (food prices were down 5.9% y/y in January). We thus see that core CPI (CPI ex food and energy) remains in positive territory at 0.4% y/y. Hence, we do not see any broad-based deflation in China. The lower food prices are also helpful in terms of stimulating Chinese private consumption, as they ease living costs and improve purchasing power for Chinese consumers. Producer prices fell 2.5% y/y in January (prior: 2.7% y/y).
In Japan, the deputy governor of the Bank of Japan Shinchi Uchida said the BoJ would likely end its risky assets purchases, as part of unwinding its monetary support scheme. He stressed however that beyond putting an end to its negative interest rate (which currently stand at -0.1%), he did not see the BoJ raising rates rapidly if its inflation target of 2% was otherwise met. JPY weakened a bit on the back of this. We still view the spring wage negotiations as key for the development in Japanese inflation, and as such Japanese monetary policy.
What happened yesterday
In Germany, industrial production declined 1.6% m/m compared to consensus expectations of -0.5% m/m. Given the already released German GDP numbers showing the economy contracted 0.3% q/q in Q4 2023 the contraction in industrial production is not surprising. The data however shows German industry was a growth drag in the economy towards the end of 2023.
Israeli premier Benjamin Netanyahu declined a proposed ceasefire deal which US secretary of state Anthony Blinken who arrived in Israel Wednesday had tried to secure. Netanyahu was cited for calling Hamas’ demands “delusional” as well as saying “total victory” was achievable within months.
In Sweden, we got the Riksbank’s minutes which mostly confirmed what was said at the monetary update last week. Several board members were open to a cut in H1 2024 depending on the development of inflation and the real economy. However, the minutes highlighted somewhat more any risks than in the official statement; namely worries about inflation risks that a new weakening of the SEK could pose, and the currently too alleviated price plans were mentioned as well. There were also some indications of caution to cut before big central banks given risks to the exchange rate. They highlighted the importance of cutting cautiously which matches well with our forecast.
The Polish central bank kept its base rate unchanged at 5.75% in line with expectations.
Equities: Global equities were higher yesterday primarily lifted by US large cap stocks. There was no major top-down news to move the market and we were not surprised to see the market drifting higher and VIX sliding in yesterday’s session since the sum of macro, monetary policy and earnings news has been rather positive for stocks lately. One obstacle for equities is the reemerged fear of CRE-related losses for banks in the US and not least regional banks. That was also the case yesterday with a 3% intraday swing in the KBW index (US regional banks). In US yesterday: Dow +0.4%, S&P 500 +0.8%, Nasdaq +1.0%, Russell 2000 -0.2%. Asian equities mostly higher this morning with Japan up more than 2% and hence continuing the strong run back by a weak currency. Futures marginally higher in Europe while mixed in the US.
FI: Wednesday was yet another quiet session without any major news out. Long-end UST yields drifted higher through most of the session but ended unchanged as the refunding auction in the 10Y tenor (USD42bn) saw very decent demand (bid-to-cover: 2.56). Today, focus will turn to the USD25bn offered at the 30Y auction. The German curve bear steepened slightly as Schnabel’s FT interview, where she explicitly warns against the still present upside risks to Eurozone inflation, led to renewed moderation of rate cut expectations in markets. In just one week, the pricing of ECB rate cuts for 2024 has declined from 150bp to 125bp. Our base case is still 75bp.
FX: Risk-on as S&P500 closes in on its 5,000 milestone, with EUR/USD gradually edging higher throughout the session. Scandies sideways, with a slight tilt lower for NOK/SEK which now sits below 0.99 once again. USD/JPY remains above 148 as JPY continues to struggle.
. That marks the fourth month in a row with a negative print y/y. The negative Chinese inflation is however to a large degree driven by lower food prices (food prices were down 5.9% y/y in January). We thus see that core CPI (CPI ex food and energy) remains in positive territory at 0.4% y/y. Hence, we do not see any broad-based deflation in China. The lower food prices are also helpful in terms of stimulating Chinese private consumption, as they ease living costs and improve purchasing power for Chinese consumers. Producer prices fell 2.5% y/y in January (prior: 2.7% y/y).){kind=link}