In focus today
In the US, February retail sales and PPI are due for release today. Consensus expects a rebound in retail sales after the unusually weak January print, which might have been distorted by heavy seasonal adjustments at the start of the year. Markets will also follow if the sticky price pressures seen in the CPI earlier this week will be reflected in the PPI as well.
In Sweden, we get the inflation numbers for February. We forecast CPIF at 2.4% y/y and CPIF excl. energy at 3.5% y/y. The fall in core inflation can mainly be attributed to clothing, food, rent and hotel/restaurant prices (in that order of magnitude). However, uncertainty remains high not least because the impact of rent increases is difficult to predict and after a lower-than-expected increase in January, the risk remains to the upside. From the Riksbank, Anna Breman will be participating at a conference on the topic of sustainable finance and the Riksbank will publish a fresh payment report.
In Norway, the regional network survey is scheduled for release. The survey pointed to a drop in activity in Q1. Signs that the rate peak has been reached seem to have improved the sentiment among both corporates and households, and hence we expect that growth prospects will return to positive ground, albeit it should be noted that this does not mean that growth will pick up sharply into the summer, but just stop falling further.
Overnight, Japan’s biggest labour union federation, Rengo, releases the first tally of pay deals. This will be the first indication whether wage growth will be strong enough this year to support a sustainable inflation pressure. The results of the spring wage negotiations will be absolutely key to the Bank of Japan’s decision whether to start tightening policies.
In China, we also get overnight data. The PBOC releases the 1-year Medium-term Lending Facility (MLF) rate, but it is expected to be unchanged as PBOC likely awaits clearer signals of Fed easing. The 5-year MLF rate, which is a mortgage rate benchmark, was surprisingly cut by 25bp last month and is unlikely to be cut again already. However, PBOC has clearly signalled over the past week that the direction for rates is down and that they have more leeway when other central banks start easing as well. Moreover, Chinese house prices for February will also be released. The print can be seen as an important bellwether for a turn-around in the Chinese housing market. Last month data surprised to the upside, bringing some rays of light.
Economic and market news
What happened yesterday
In the US, the House of Representatives has passed a bill demanding ByteDance, the Chinese owner of TikTok, to divest its U.S. assets within six months or risk a ban. However, the bill’s future in the Senate is still uncertain, as discussions persist. The bill marks the most recent step in a series of measures taken in Washington to address national security concerns regarding China.
In the euro area, industrial production declined more than expected in January amid December production being revised down, printing -3.2% m/m (cons: -1.8%) and -6.7% y/y (cons: -3.0%). Hence, the euro area industry starts the year on a weak footing and will likely not contribute to growth before the Q2 or Q3 of 2024. Note, that the decline was driven especially by the very volatile Irish industrial production that dropped 34% m/m due to a base effect from, most likely, a large patent in December.
Also, the ECB announced changes to its operational framework for implementing monetary policy. The key takeaways include the fact that the governing council will continue to steer the monetary policy stance through the deposit facility rate (DFR). The minimum reserve requirements remain unchanged at 1%, and the remuneration of minimum reserves will likewise stay unchanged at 0%.
Additionally, the main refinancing operations (MRO) rate will be adjusted so that the spread between the MROs and the DFR will be reduced to 15bp from the current spread of 50bp. Moreover, the rate on the marginal lending facility (MLF) will also be adjusted, maintaining the spread between the MLF rate and the rate in the MROs at 25bp. These changes will commence with the sixth maintenance period of 2024, beginning on September 18, 2024.
In the UK, January GDP data was fully in line with consensus, coming in at 0.2% m/m, -0.3% y/y and -0.1% 3M/3M. The market reaction was muted.
In geopolitics, US and Iranian officials reported that in January, the US engaged in secret talks with Iran in an effort to convince Tehran to leverage its influence over the Houthis to cease attacks on ships in the Red Sea. Oman facilitated the talks, with Omani officials shuttling between representatives from both nations. Additionally, U.S. Secretary of State Antony Blinken portended that the US is working towards setting up a maritime aid corridor into Gaza.
Equities: Global equities were marginally lower yesterday despite most sectors ending higher. However, with tech and healthcare lower a huge share of the index was dragging down. Europe outperformed the US and once again cross regional sector performance was very different. One can easily be caught wrong footed when looking at volatility, and especially the volatility in AI-related stocks. Hence, we recommend not to focus too much on the day-to-day change in sentiment but rather use the signs from the macro side which in our opinion hold the clues for the medium-term outlook. In US yesterday, Dow +0.1%, S&P 500 -0.2%, Nasdaq -0.5% and Russell 2000 +0.3%. Asian markets are mostly higher this morning together with European and US futures.
FI: European yields rose across the board yesterday albeit with limited news to trade on. The 10y German yield ended up 3bp on the day. The general tightening trend of for example the German ASW swap spread and the BTPs-Bund spread continued, with the ASW-spread crossing 30bp.
FX: A relatively quiet day with the recent USD respite proving short-lived as EUR/USD climbed somewhat. Not much action in Scandies as both SEK and NOK trades mostly sideways. EUR/GBP continued to climb steadily higher, whereas EUR/PLN remains below 4.30.
