RBNZ Holds Rates Steady

In focus today

In Sweden we get PPI and trade balance data for January at 08:00 CET. We see no indications now that development will stop or that the export sector would cease to be the driving force for the Swedish economy. At 09:00 CET we get the NIER’s Economic Tendency Survey for February. The focus is on price plans, where especially the service price plans are still too high.

Economic and market news

What happened over night

In New Zealand, the Reserve Bank of New Zealand (RBNZ) held monetary policy unchanged overnight, as expected. In contrast to other G10 central banks eyeing the start of their respective rate cutting cycles, markets have speculated in an additional rate hike from the RBNZ, but the tone of today’s announcement was clearly to the dovish side, suggesting that the current level of policy rate is seen as sufficiently restrictive. We expect NZD/USD to decline further over the coming year, with 12M target at 0.57.

In Australia, inflation was held at a two-year low in January despite markets expecting inflation to increase. This will probably increase the probability that we have seen the last interest rate hike from the Reserve Bank of Australia. Markets reacted by sending AUD/USD lower upon the release.

In the US, Donald Trump took another victory in the primary election of Michigan. At the deadline for this publication Donald Trump won 68% of the counted votes against 26% for his only remaining competitor Nikki Haley. Next Tuesday, 5 March, is the so-called Super Tuesday when primary elections will be held in fourteen states and one caucus in one day. This can be decisive for Haley if she wants to stay in the race.

What happened yesterday

French president Emmanuel Macron said Monday that he is ready to do everything so that Russia does not win the war in Ukraine and that he would not rule out sending western troops to Ukraine if that is what it takes. Yesterday representatives from Russia warned that war with NATO would be the consequence if the alliance sends troops to Ukraine. Later leading politicians from Germany, the UK and eastern Europe denied that western troops would set feet in Ukraine.

The euro area monetary aggregates and lending data did not change the ECB outlook or give rise to immediate correction for ECB narrative. M3 grew 0.1% y/y in January. M1 continues to decline by 8.6% y/y. Loans to households grew 0.3% y/y in January. Loans to non-financial corporations grew 0.2% in January. All are broadly in line with data from December. The credit to the private sector is still relatively weak and the risk in net external assets (i.e. foreigners) is compensating for the significant negative continuation from the LTROs and QT.

In Sweden, Riksbank governor Erik Thedéen said that inflation continues to move in the right direction, and he did not rule out the possibility of a cut in the policy rate in the first half of this year. However, he also expressed that the outlook for inflation should remain favourable for this to happen. He also expressed that Riksbank can cut before ECB amid benign wage hikes. This was very much in line with his previous comments, but still very relevant, as it keeps all doors open ahead.

The Financial market statistics for January showed that household lending decreased for the third month in a row, which means it happened for the first time this since the 90s. Also, fixed interest rates on new agreements for mortgages continues to decrease for the second month in a row since the rates peaked in December.

In Hungary, the central bank lowered interest rates by 100bps from 10.0% to 9.0% in line with market expectations. Therefore the central bank accelerates the pace of the rate cuts from last meeting where they lowered interest rates by 75bps. The rate cut came after Hungary’s annual inflation has fallen to 3.8% in January, which is within the central bank’s tolerance band. The policy rate peaked last year at 13.0%.

Oil prices trade close to the highs this year – Brent climbed back above USD83/bbl this week. In our view, the positive sentiment owes to the combination of OPEC+ mulling an extension of output cuts, rising global economic growth expectations and slightly weaker USD. We do not foresee a prolonged rally in oil prices. Rather, we stick to our view that Brent will average around USD80/bbl.

Equities: Global equities were higher yesterday with firmer investor sentiment. A mixed bag of macro data still led to cyclical outperformance, lower vol and most noteworthy, sizable outperformance from small caps. The equities markets are still in a cyclical tech led rally, but we are looking for the leadership to broaden and not least lifting the small caps further. In US yesterday, Dow -0.3%, S&P 500 +0.2%, Nasdaq +0.4% and Russell 2000 +1.3%. Asian markets are mostly lower this morning with South Korea going against the trend. Both US and European futures are in red this morning.

FI: European rates sold off from the long end, amid significant long-end supply. Subdued lending growth data from the euro area and weakish French consumer confidence sent yields lower from the morning, yet rates traded higher through the day as long-end supply was digested from Netherlands (2044 bond), Germany (2050 bond) and not least the EUR7.5bn 30y supply from France.

FX: Yesterday was another quiet session in the FX space without any major moves. The JPY continued to benefit from the higher-than-expected Japan January CPI print, which increased market pricing of a spring BoJ rate hike. Meanwhile, Scandies traded on the back foot, and EUR/USD remains stable in the mid 1.08-1.09 range. EUR/GBP has been in for a whirlwind during the past of couple of weeks, currently trading back above the 0.85 mark. Oil prices trade close to the highs this year – brent climbed back above USD83/bbl this week.