In focus today
In the US, the Fed’s preferred measure for inflation, the PCE, is due for release for January. While the earlier CPI showed a notable uptick in inflation pressures at the beginning of the year, the components from CPI and PPI that feed into the PCE indicated a more modest rise in the latter.
Today, we receive February inflation data from Germany and Italy.
A bunch of Swedish data released at 08.00 CET today. Retail sales for January, where we would not be overly surprised to see a setback following the strong December figure. The Swedish National Mediation Office also publishes data on Swedish wage developments up until December 2024. But most interestingly, we can summarize the Swedish growth year of 2024 as we receive the final piece to the puzzle, namely the Q4 figure. We expect +0.4% in Q4, which would result in yearly GDP growth of 0.6% for 2024, aligned with our December Nordic Outlook forecast.
Economic and market news
What happened overnight
In Japan, Tokyo CPI inflation for February was slightly below expectations, with CPI excl. fresh food printing 2.2% y/y (cons: 2.3%, prior: 2.5%). While this marked a slowdown for the first time in four months, the downtick mainly reflected revived energy subsidies. Hence the underlying trend remains unchanged with high food prices. The Tokyo CPI is normally a leading indicator for national CPI data, suggesting some potential downside risks when the February report is released late March. All in all, the measure remains above the central bank’s 2% target, supporting our view of further rate hikes by the BoJ. Speaking of BoJ, deputy governor Uchida stated that the central bank will keep tapering its government bond purchases despite recent rises in yields. Uchida also reaffirmed BoJ’s readiness to hike rates if data evolve as projected.
What happened yesterday
In the US, tariffs were in the limelight, as Trump announced that the proposed tariffs on Mexico and Canada will come into effect on 4 March as scheduled, while announcing an additional 10% tax on China. This naturally led to USD-strengthening against CAD, MXN and CNH, but the overall market reaction was relatively muted, indicating that markets may be waiting for actual implementation of the much-discussed tariffs. The rhetoric was relatively mild toward the UK, as Trump said that the UK could escape levies if the two countries agree on a trade deal after meeting UK PM Starmer yesterday.
Data-wise, yesterday was somewhat of a nothing burger, as the second estimate of Q4 GDP remained unchanged from the flash release with no meaningful revisions in the details, and initial jobless claims and continuing claims showed no major surprises. Similarly, the overall signals from Fed speak did not rock the boat, as Harker (hawk and non-voter) and Hammack (hawk and non-voter) emphasized that the Fed should keep the policy rate at current levels. Schmid (hawk and voter) pointed out that the Fed should stay on its toes amid the rise in inflation expectations, while also noting looming growth concerns. Looking ahead, we believe that the Fed will be on pause in March and May, though we think the cutting cycle is far from over.
In the euro area, credit growth for January ticked up to 1.3% y/y from 1.1% y/y in December. The increasing credit growth should support the economy and shows that the recent easing of monetary policy is starting to affect the economy. While the ECB’s Schnabel argues that the rising credit growth is a sign that monetary policy might not be restrictive anymore, we continue to believe that monetary policy is restrictive. As such, we expect the ECB to cut the policy rate below 2% as the growth rate in credit remains very low in yearly terms and highlight that recent momentum in the credit impulse has flatlined in recent months. For more details on our expectations for the ECB, please see ECB Preview – A cut is the easy part, 28 February.
In Spain, headline inflation for January was held up by energy prices as expected. Conversely, core was weaker than consensus declining to 2.1% y/y (cons: 2.3%, prior: 2.24%). The February report affirmed the trend seen in the recent months, namely that energy inflation is holding up the headline figure, while the core measure is much softer. On Monday, we expect euro area inflation to decline to 2.3% from 2.5% and core inflation to 2.5% from 2.7% due to lower energy and services inflation. The Spanish data suggests some small upside risk to the headline figure amid high energy inflation, but we will know more when we get French and German inflation today.
In Sweden, the NIER economic tendency indicator decreased marginally in February to 97.1, indicating somewhat subdued sentiment. Price plans rose, mostly driven by food prices. The consumer confidence indicator fell by 3.3 units to 95.0, showing weaker sentiment than usual. While we did not expect this after the high PPI figures and last week’s high inflation print, food prices are the main driver, yielding some comfort.
In Norway, the LFS-unemployment rate (trend adjusted) was 3.9% in January, unchanged from the revised December figures. This confirms our expectation that the labour market remains relatively tight even though growth in employment seems to have slowed. As always, we put more emphasis on the NAV-figures, where February numbers are due this morning. Also, Norges Bank’s Expectations Survey has been postponed to today.
Equities: Risk-off was the story yesterday. We have been surprised by how isolated the sell-off has been to the US but this time selling took place in Europe and Asia as well. Trump 2.0 policy is an easy excuse for the pullback. While markets have so far viewed tariff threats as a negotiating tactic, it is not completely immune to the volatility. Stoxx 600 dropped -0.5%, led by the auto sector that slid -4%. Asian markets reacting more harshly with most Asian markets <-3% this morning. However, tech sell-off is just as much to blame for the big market moves. Despite the strong Nvidia report, the stock plunged almost -10% yesterday. This is rather a reflection of high US valuation getting questioned which is more of a rotation story than a risk-off story. US futures are little changed this morning.
FI: President Trump’s announcement of tariffs on Mexico, Canada and China will take effect next week sparked renewed downward pressure on global yields yesterday. The 10Y US Treasury yield is now trading very close to our 12M target of 4.20%, while the Fed Funds terminal rate pricing is moving closer to 3.5%. EGB yields fell a couple of basis points across the curve, while Bund ASW spreads saw a bit of reversal of the past week’s downward trend.
FX: The USD rallied broadly yesterday after US President Trump confirmed upcoming import tariff hikes on Canada, China and Mexico. Of noticeable moves, EUR/USD fell towards 1.04 and EUR/SEK rose close to 11.19.
