In focus today
Markets remain closely focused on President Trump’s actions during this first week of his presidency. He is expected to issue several executive orders building on his current momentum, leading to US news continuing to dominate the headlines as markets and world leaders alike are left navigating the implications.
In the euro area, we receive consumer confidence data for January, which will be very interesting. Following a continuous upward trend over the past two years, consumer confidence declined in both November and December. Since private consumption is anticipated to be the primary growth driver this year, consumer sentiment will be crucial for the economic outlook.
Norges Bank (NB) is highly expected to stay on hold at 4.5% today and signal that the first rate cut will most likely be delivered in March. December’s core inflation likely relieves NB after November’s spike, indicating continued disinflation. However, global rates, NOK, and oil prices suggest upside risk to December’s rate path. NB is expected to remain vague on the outlook beyond March.
Overnight in Japan, we will receive both CPI and PMI data for December ahead of the Bank of Japan meeting early morning. Tokyo inflation data indicates price pressures have eased a bit in December. The economic recovery has been on track for a while and inflation close to target. We expect the BoJ will hike its policy rate by 25bp, which is also largely priced in by investors now.
Economic and market news
What happened yesterday
In the US, President Trump told Russian President Putin to reach a deal in Ukraine or be faced by increased sanctions from the US. This marks the first comment by the president on the war in Ukraine. Overnight Trump halted more than USD 300bn in US green infrastructure funding, while paving the way for a USD 500bn private-sector investment in AI infrastructure. He also disclosed that his administration was currently discussing a 10% tariff on China, as well as saying the EU will get tariffs due to a “troubling” trade surplus with the US.
Equities: Global equities rose yesterday, marking the seventh consecutive day of gains, with the MSCI World Index reaching a new all-time high. This is noteworthy given the widespread caution and predictions of volatility surrounding the inauguration of the US president, which have not materialised. Instead, there has been a steady increase, and those who reduced risk beforehand would have missed out on a 4% equity return, equivalent to half a year’s average return in just seven days. This could serve as a reminder of not being too cautious about underweighting risk during periods when macroeconomic, microeconomic, and monetary policies are highly supportive, even when political issues dominate 90% of the media coverage.
In the US yesterday, the Dow was up by 0.3%, the S&P 500 by 0.6%, the Nasdaq by 1.3%, and the Russell 2000 was down by 0.6%. This morning presents a mixed picture in Asia. Earlier, Chinese stocks performed better following comments about increased public support for the equity markets, but this effect has since faded. US and European futures are slightly lower this morning.
FI: There was modest movement in global bond yields yesterday as 2Y and 10Y US Treasuries rose a few bp. In the European market there was also modest movement in bond yields. 2Y and 10Y German government bonds also just moved a few bp. Furthermore, the spread between the semi-core vs. Germany as well as periphery vs. Germany continue to tighten. Hence, the 10Y Italy vs. Germany spread is close to breaking through 100bp, while the 10Y French vs. German 10Y yield spread has stabilised and is slowly moving towards the 70bp-level. Finally, the Bund ASW-spread has also been rangebound at 0bp to -2bp.
FX: NOK rose and JPY lost ground yesterday ahead of monetary policy decisions from Norges Bank and Bank of Japan with the latter set to hike interest rates tomorrow. EUR/USD was steady yesterday just above 1.04.
