In focus today
The last trading day of the week bids us mostly Tier-2 data points.
China celebrates the Lunar New Year on Saturday, and the transition into the Year of the Dragon. Hence, next week is a bank holiday in China, and it will thus be quiet on the Chinese news front. Besides festivities, the Chinese New Year marks a busy travel season, as hundreds of millions of people will be travelling to be with family. Not least the 250 million migrant workers in the cities.
In Norway, we get inflation numbers at 08.00 CET. We expect core CPI to land at -0.1% m/m and 5.2% y/y.
The U.S. Bureau of Labor Statistics publishes its annual revisions to CPI seasonal adjustment factors. While we do not expect material changes, last year the revisions did suggest that inflation had been stickier than previously thought.
In Sweden, we get a bunch of indicators from December in the form of household consumption and supply side factors. The indicators should eventually reflect an inevitable refill of inventories.
We look out for the final German inflation data to dissect the large monthly increase in core inflation registered in January. The increase was likely due to a VAT increase in restaurant services and administered price increases on education and healthcare. These one-off factors should not change the ECB’s view on underlying inflation, but it is worth looking at whether the increase was more broad-based.
We wish you a great Friday and weekend!
Economic and market news
What happened overnight
In the US, Donald Trump won the Nevada state caucus as expected. Earlier Thursday he had also won the Virgin Island caucus. The wins put Trump even closer to the GOP nomination for the 5 November presidential election.
In commodities, oil prices rose more than three percent yesterday after Israeli premier Netanyahu refused a proposed ceasefire deal. The ICE Front Month Brent future trades flat this morning.
What happened yesterday
Fed’s Barkin spoke at the Economic Club in New York City. He said it was wise for the FOMC to take its time before cutting rates, so as not to risk inflation reemerging. Barkin underlined that a very strong labour market, as well as strong demand gave the FOMC time to wait before beginning to cut rates. We believe the Fed will cut rates four times in 2024, whereas markets currently price in almost five cuts.
In the US, initial jobless claims fell to 218k from 227k last week, close to expectations.
In the Czech Republic, the central bank cut the repo rate by 50bp to 6.25% from 6.75%. A Reuters poll showed analysts expected a 25bp cut to 6.50%. The CZK sold off markedly following the announcement.
The Riksbank’s deputy governor Per Jansson said a rate cut in Sweden was more likely in May or June than in March. He reiterated the message from the Riksbank’s minutes released Tuesday, saying the bank would proceed with caution when it came to cutting rates. We expect the first rate cut in June.
Equities: Global equities were higher again yesterday and just like Wednesday without any major macro on monetary policy news to set the direction. We are for sure not big believers in technical analysis but admit it is a puzzle how S&P500 gets so extremely close to the 5000 level but not breaking it. To make it clear, we do not think it is a magic resistance level and it just a question of time until the index is higher. Yesterday we saw a bit more sector rotation with cyclical growth outperforming. That was not so surprising, but it is more interesting to see material and banks struggling when sentiment is improving like it is currently. Materials is very much a function of the challenging period for China (industrial metals down 3% last 5 trading days). Banks are lagging the faith from investors in being able to first avoid loan losses and secondly deliver earnings growth. We argue the fear of loan losses is overdone while we admit banks will struggle in delivering compatible earnings growth short term. In US yesterday, Dow +0.1%, S&P 500 +0.1%, Nasdaq +0.2% and Russell 2000 +1.5%. Asian markets are mixed this morning. Please note several markets are now closing for the Lunar New Year holiday. Futures in Europe and US are barely moving this morning.
FI: Bond yields traded higher in absence of new information through the European trading session. Because there was no significant driver, one may attribute the move higher in yields to be emanating from the front end with markets continuing to price out the aggressive policy easing. The 10y Bunds ended 4bp higher at 2.35%, which is a new year-to-date high. The US Treasury USD25bn 30y bond auction saw solid demand of 2.4 bid to cover ratio, which is in line with previous appetite. Rates moved 2bp lower on the back of the auction.
FX: The USD found some support yesterday after having struggled slightly over the previous three sessions. Meanwhile, BOJ Deputy Uchida’s dovish statements pushed the JPY to the lowest level since late November, with USD/JPY eyeing 150 consequently. The Sterling weakened somewhat after jobs report showed easing wage growth. NOK defied rising oil prices and weakened, pulling NOK/SEK towards 1M low 0.9850.
