In focus today
In the euro area, we receive industrial production figures for January. It will be interesting to see how actual production fared in January as soft indicators have shown improvements and the global manufacturing cycle has bottomed out. Also, the ECB is set to unveil its new operational framework.
In the UK, at 8:00 CET we get the monthly GDP figures for January.
In Sweden, today’s focus is on speeches from Riksbank deputy governors Flodén at 08:50 CET and Breman at 09:00 CET regarding the economic situation and current monetary policy.
Economic and market news
What happened overnight
In the US, as highly anticipated, the presidential election this year will very likely be a rematch of the 2020 election, as both President Joe Biden and former President Donald Trump secured the required number of delegates to become their parties’ nominees. However, this was unofficially confirmed last week when Nikki Haley pulled out of the race.
In Japan, Reuters sources reported that the BoJ is likely to provide numerical guidance on its future bond purchases after it is soon expected to exit its long-standing yield curve control policy and negative rates. Purchases would remain close to current levels to avoid abrupt spikes in yields. Furthermore, some of the biggest Japanese companies, including Toyota, Panasonic, and Nissan, have offered their largest pay raises in decades during the annual wage negotiations. Hence, this could add support to sustainable inflation pressure.
In Europe, Governing Council member Pierre Wunsch (hawk) reiterated that the ECB may need to take a risk by implementing an interest rate cut soon, despite concerns over high wage inflation and service price increases.
What happened yesterday
In the US, February CPI came in slightly above expectations. Headline inflation was 0.44% m/m SA (consensus +0.4%) while core inflation was 0.36% m/m SA (consensus 0.36%), The details were somewhat concerning for the Fed as well – for instance non-housing services inflation, which is the key point of focus for the Fed, remained steady from January. For more details, see Global Inflation Watch, 12 March. Additionally, the NFIB’s February survey showed that the small business optimism index edged down to the lowest level since May amid inflation concerns.
In Germany, the final inflation print confirmed the flash release of 2.5% y/y (0.4% m/m) increase in CPI and core CPI at 3.4% y/y. The underlying details reveal a softer inflation print than the headline figure due to package holidays and the VAT increase on food in restaurants.
In the UK, the labour report for January/February was released yesterday. Wage growth came in lower than expected across the board with average weekly earnings excl. bonus at 6.1% 3M/YoY. Similarly, the KPMG/REC report on UK jobs, which was released early Monday night showed continued broad easing in the labour market with starting salaries rising at the slowest pace for almost three years and vacancies declining rapidly. With official data still suffering from poor data quality, the BoE increasingly relies on the KPMG/REC survey as a leading indicator for wage growth and of labour market tightness.
On the geopolitical stage, President Biden announced that the US will provide a new USD 300m military aid package for Ukraine – albeit the USD 300m is merely a fraction of a USD 60bn aid package Congress has debated over the past few months. Likewise, the EU is set to agree on a new EUR 5bn military aid fund later today, reported by the Financial Times yesterday. Finally, a vessel carrying 200 tonnes of food for Gaza departed from Cyprus, which is part of a pilot project to establish a new sea route for aid to Gaza.
Equities: Global equities were higher yesterday despite a mixed US CPI report and higher yields. Looking at the sector rotation it also reveals this was not just about a very benign inflation outlook but also part of what we call the AI-frenzy with very elevated volatility in some single names. This sign of exuberance is as a standalone negative for the equity outlook. In US yesterday, Dow +0.6%, S&P 500 +1.1%, Nasdaq +1.5% and Russell 2000 -0.02%. Asian markets are mixed this morning with Japan lower and China higher. US and European futures are mostly positive.
FI: Global rates zig zagged as the immediate reaction to the US inflation release yesterday, but the market interpretation ended up being clearly to the hawkish side. The US treasury curve bear flattened as markets shaved off expectations for US rate cuts in 2024. 10Y UST yields were up 6bp, while the US breakeven inflation curve rose from the front. 10Y Bund yields rose 3bp with the Bund ASW-spread continuing to drift lower, ending the day in 30.1. The tightening of spreads was also evident in the 10Y BTP-Bund, which dropped to 127bp yesterday – the lowest since end-2021.
FX: The US CPI pushed yields higher, which in turn supported the greenback. NOK and JPY struggled vs the USD, and EUR/GBP ended the day higher amid a weak UK labour market report. NOK/SEK traded heavy and hit the lowest levels since December.
