In focus today
We get the euro zone Sentix Investor Confidence index this morning at 08.30 CET.
In China the annual key policy event the ‘Two Sessions’ kicks off today. Focus is on the government’s work report at the National People’s Congress (NPC). The report will among other things include China’s 2024 growth target, which is highly expected to be set again at 5%, albeit this seems rather ambitious given less favourable base effects facing the Chinese economy in 2024.
The party leaders in Sweden’s government will give a press conference at 11:00 on new fiscal policies.
Fed’s Harker speaks at 17.00 CET.
Economic and market news
What happened overnight
The Japanese stock index Nikkei rose past 40,000 for the first time ever during its Monday session. The index has seen a strong performance so far this year, which amongst other things has been fuelled by a loose monetary policy from the Bank of Japan as well as a weak Japanese yen.
What happened over the weekend and on Friday
In the euro area, inflation numbers on Friday came out strong with core inflation standing at 0.30% m/m, and services inflation at 0.39% m/m. The monthly momentum does not align with the ECB’s 2% target, and it fuels fears of upside risk to inflation from wages. Headline HICP came out at 2.6% y/y down from 2.8% in January, falling less than expected. Core inflation stood at 3.1% y/y, down from 3.3% the month before, but had equally been expected to have dropped further. On Friday, we published our ECB Preview – Policy normalisation in sight, 1 March, ahead of Thursday’s ECB Governing Council meeting. We believe the ECB will deliver its first rate cut in June, in line with recent speeches by Governing Council members.
In the US, former president Donald Trump won the caucuses in Michigan, Missouri, and Idaho bringing him one step closer to securing the republican nomination. This Tuesday, more than a third of all delegates in the republican race will be up for grabs as the so-called Super Tuesday kicks off. The day may prove final to Trump’s only left opponent Nikki Haley whose odds have been slimming as Trump has been securing delegates. Haley secured all delegates in the Washington D.C. primary on Sunday, making it her first win in the 2024 primaries ahead of the Super Tuesday.
On Friday US stock indices Nasdaq and the S&P 500 closed at record levels. Whereas the S&P500 beat its record from the day before, Nasdaq beat its previous record from 2021.
In the Middle East, Israel on Sunday boycotted ceasefire talks with Hamas in Cairo after the organisation rejected Israel’s demand of handing over a list of all hostages still alive. A US official had otherwise said Israel had nearly accepted the terms of a proposed ceasefire agreement which would see fighting paused for six weeks.
In the commodity space, OPEC+ decided to extend its output cut to the second quarter of this year. The organization said the cuts could be reversed gradually in accordance with demand. OPEC+ sees demand growth this year land at around 2.25 million barrels per day, whereas the International Energy Agency expects more modest growth of 1.22 million bpd.
Equities: Global equities were higher on Friday across regions with relatively large cyclical outperformance. There were several new all-time highs last week, and the S&P 500 has now been higher in 16 out of the large 18 weeks; this has not happened in more than 50 years. It goes without saying that this fit well into our strategy, but we must also admit that some of our reality gaps are starting to look stretched, limiting the short-term potential in equities. In US on Friday, Dow +0.2%, S&P 500 +0.8%, Nasdaq +1.1% and Russell 2000 +1.1%. Asian markets are mixed this morning just like US and European futures.
FI: European rates ended broadly unchanged on Friday after trading in a 5bp low-to-high range, which left 10y Bunds at 2.41% by the end of day. The February inflation print pointed to the European disinflation process continuing with headline inflation coming in at 2.6% and core at 3.1%. Coupled with the recent guidance from ECB Governing Council members, we see the ECB is on route to deliver a June rate cut. This is aligned with market pricing with 4bp priced by April and 21bp cumulated by June. On Friday night, Portugal got upgraded to A- by S&P as expected. In short term, it should have modest price impact given that Portugal already trades like a single A country.
FX: EUR/USD holds the range of 1.0800-1.0850 and starts this week at the upper end. Likewise, USD/CHF continues to be range-bound. EUR/JPY is close to 163 after last week’s high at 163.60. Following strong performance through February, EUR/CHF is just below 0.96 and will take direction from today’s Swiss inflation data. EUR/NOK saw a sharp drop on Friday and trades at 11.40, whereas EUR/SEK kicks off this week at 11.20.
