In focus today
In the U.K. Chancellor of the Exchequer Jeremy Hunt will deliver his spring budget. With the general election looming the chancellor is expected to present a range of expansionary measures, namely tax cuts.
In the US we get both JOLTs for January as well as ADP employment numbers for February. FOMC chairman Powell will also be giving testimony in the House of Representatives.
In Poland and Canada, the respective central banks both announce rate decisions today. We expect both central banks to keep rates unchanged at 5.75% in Poland, and 5.00% in Canada respectively.
In the euro area we await retail sales for January due at 11.00 CET.
Economic and market news
What happened overnight
Former president Donald Trump expectedly came out a major winner of the so-called Super Tuesday. Trump had by 6.45 CET secured 662 delegates out of the 1215 republican that were up for grabs between the 15 different states that voted in the republican primaries yesterday. His opponent Nikki Haley had Tuesday secured 36 at that point in time.
What happened yesterday
In the US, the ISM non-manufacturing PMI disappointed slightly at 52.6 whereas a consensus of economists polled by Reuters had expected 53.0.
In Europe, the European Commission presented a draft for a European Defence Industry Strategy. Besides focusing on building the EU defence sector and ensuring that the EU buys defence equipment from European producers, the draft proposed mobilising EUR 1.5bn from 2025-2027 funded by the EU budget.
Released country data indicates euro area wage growth as measured by compensation per employee is likely to have slowed to 4.65% in Q4 2023 down from 5.3% in Q3. As the ECB likely knows the euro area aggregate figure when meeting Thursday, they may sound less hawkish on the upside risk to inflation from wage growth. However, as wage growth is high despite the decline, the ECB may prefer seeing Q1 2024 data before cutting rates as the wage-sensitive services inflation is hot. Q1 data is available for the ECB’s June meeting.
Amongst precious metals, spot gold surged to an intraday record as it rose to as high as USD 2141.59 per troy ounce beating its previous record from 4 December of USD 2135.40 per troy ounce.
Equities: Global equities were lower yesterday with most sectors and regions lower. However, US tech was in focus, ending down more than 2% despite a late hour rally. Also, consumer discretionary was lower as Tesla was taking a 2-day beating of more than 10%. Add to this that Bitcoin was down almost 10%, and we have a picture of stocks that have been rallying sharply since October now getting beat down. Hence, this was not a macro story but much a reflection of the heavy positioning tilt towards the AI, tech and growth space. In US yesterday, Dow -1.0%, S&P 500 -1.0%, Nasdaq -1.7% and Russell 2000 -1.0%. Asian markets are mostly lower this morning while China going against the trend. Futures in Europe and US are higher this morning.
FI: Risk-off sentiment in US equity markets and weak ISM details supported global bonds yesterday, with the 10Y tenor seeing substantial declines across markets. The German government yield curve was down by 5-6bp throughout yesterday’s session, while peripherals continued to outperform with 10Y BTP yields declining 10bp. The Bund ASW-spread was close to unchanged at 34bp, still standing at the lowest level since mid-2021, while the 5Y5Y EUR Inflation swap rate dropped a bit following ISM. The weakening of US data seen over the past week has led to a convergence between the expected amount cuts in 2024 from the ECB (now 90bp) and the FOMC (85bp). We pencil in 75bp for both.
FX: After a short-lived spike toward 1.0875, EUR/USD is back at around 1.0850. JPY is a bit stronger with USD/JPY dipping below the 150 mark and with EUR/JPY back below 163. EUR/GBP is lower, yet in the tight range around 0.8550. USD/CAD is challenging, still without taking out the 1.36 level. The Antipodeans are flirting with the lower end of their recent trading ranges vs the USD. EUR/DKK spot continues to trade around the 7.4540-50 level, while both SEK and NOK has had a weak start to the week.
