In focus today
In Sweden we get the results from the Inflation Expectation Survey conducted by the Origo Group (previously Prospera). The Riksbank emphasises the importance of having the long (5y) inflation expectations well anchored at the 2% inflation target, which has been the case since the start of 2024 (between 1.9% and 2.1%). We do not expect to see any large deviations this time either.
In the UK, focus turns to inflation data for January, where consensus expects a rise in both headline and core terms driven by fuel prices and education. Service inflation is expected to tick up to 5.1% compared to the BoE’s expectation of 5.0%. This will be the final CPI release ahead of the March meeting, where markets price low likelihood of a cut. We see the bar as high for delivering a cut in March and expect the next cut in May.
This morning China releases new home prices, which is an important gauge of the state of the housing markets. Prices have declined at a slowing pace in recent months in line with other indicators suggesting moderate improvement in housing demand. We look for prices to be around flat in January compared to December marking a halt to the decline in home prices.
Economic and market news
What happened overnight
In the US, President Trump said he would impose tariffs starting at 25% on automobiles, pharmaceuticals and semiconductor chips. No date was announced, although he plans to increase the tariffs to force companies to invest in the US. At the same time, he announced a March 12 start date for the 25% tariffs on steel and aluminium. Markets will presumably attempt to evaluate the sincerity of the statements throughout today.
What happened yesterday
Regarding the war in Ukraine, officials from the US and Russia met in Saudi Arabia for a first meeting on ending the war in Ukraine – without Ukraine represented. Both sides agreed to “lay the groundwork for future co-operation” with US national security adviser Mike Waltz commenting that the war needs to be ended permanently, and a discussion of territory and security guarantees will take place. Yuri Ushakov, Putin’s foreign policy adviser, said that the US and Russia are collaborating to set the stage for a meeting between Trump and Putin.
In Sweden, the detailed CPI report for January came in just below expectations at 0.9% y/y (cons: 1.0% y/y) and 0.0% m/m (cons: 0.0% m/m). CPIF ex. Energy matched the surprising flash reading at 2.7% y/y, which could be a worrying sign of a broader inflation pressure.
In the UK, the labour market report for December/January came in with data slightly stronger than expected. The unemployment rate remained steady at 4.4 % in December and payrolls likewise came in higher than expected in January with positive revisions for December, although this can be largely attributed to the public sector. Overall, yesterday’s report highlights that the BoE will most likely continue to stick to its “careful and gradual” approach to easing monetary policy.
In Germany, the ZEW index rose more than expected in February. The assessment of the current economic situation increased to -88.5 (cons: -89.4, prior: -90.4), which is the highest level in four months, and expectations increased to 26.0 (cons: 20.0, prior: 10.3). The ZEW index suggests that the positive surprises in German indicators (ZEW, Ifo, PMI) we saw in January continued in February. The indicators remain at very low levels, and we expect the economy to continue stagnating in the near term, but the stabilisation is finally a non-negative signal for the German economy.
Equities: Equities continued higher, driven equally by Europe and US, despite US being closed for holiday on Monday. Interesting to see big tech lagging notably without killing the party. Small caps and equal weighted equity indexes fared better, with energy, metals and semiconductor companies among the stronger groups. European banks adding 2% aided by higher yields. Asian markets are strong this morning as well, with South Korea rising 2%. The buzz is centred on Europe, but Korea have also added a dazzling 10% YTD. US futures are higher this morning.
FI: European rates traded mostly sideways through the trading session amid little news. The lack of driver led to an outperformance by the usual low-volatility performing trades (carry trades), best captured by the BTPs-Bund spread, which is now just at 105bp, which is the tightest since 2021. Tonight, FOMC minutes are released from the January meeting.
FX: Yesterday was another relatively quiet session, with broad USD strength across the G10 space. EUR/USD remains rangebound in the mid-1.04 to 1.05 area, while USD/JPY continues to trade around the 152-mark. USD/CAD held steady near 1.42 after Canada’s January CPI print aligned with consensus. EUR/GBP ended the day below 0.83 following a slightly stronger-than-expected UK labour market report for December/January. In the Scandies, EUR/SEK trended slightly lower to 11.20, while EUR/NOK edged higher to 11.65.
