In focus today
In the US, we get the February jobs report today. We see downside risks to the non-farm payrolls and expect employment growth of +180k and see average wages to have risen 0.2% m/m seasonally adjusted. Whilst February data points received thus far have been mixed, we expect labour market conditions to gradually cool over the coming months.
In the euro area, focus turns to Q4 2023 wage growth, as the role of wages and their outlook have been dominating recent ECB communication. Data on compensation per employee will be released together with final national account data. Negotiated wages displayed a continued strong wage pressure in Q4, albeit at the same time showing the peak is behind us.
We also receive German industrial production data for January. Soft indicators such as the PMI and the Ifo index have continued to show troubles for the German industrial sector, although the worst period would appear to be behind us.
In China, we receive credit and money growth between 9 and 15 March. There is no fixed date or time for this data release. The recent trend in credit growth has been rather stable supported by government stimulus. It is however important to keep in mind that the numbers can be very volatile from month to month.
In Sweden we receive a triplet of data at 8.00 CET with the GDP figures, and production and consumption indicators for January. We expect them all to display positive m/m readings on the back of positive readings from hours worked and retail sales in January. We also get the Riksbank semi-annual business survey at 9.30 CET, and Riksbank governors Breman and Flodén are due to speak on economic outlook and monetary policy.
We wish you are happy Friday and good weekend!
Economic and market news
What happened overnight
In the US, President Biden gave his State of the Union speech in Congress. He used the speech to criticize his republican opponent in the November election, former President Donald Trump. As expected, President Biden also proposed a tax reform which included higher minimum taxes on all business, and people with wealth exceeding USD100m. The election takes place on 5 November.
What happened yesterday
The ECB held interest rates unchanged as was expected. At the press conference following the decision, President Lagarde was quite clear with guidance for a June rate cut, as she emphasised the need for more data ahead of the decision. Whilst April was not definitively ruled out, she said they will know a little more in April, and a lot more in June, hence highlighting the June meeting as key. We doubt that the incoming data ahead of the 11 April meeting will be sufficiently weak to change that view. It is therefore still our view that ECB will wait and deliver its first rate cut in June. The ECB also presented new staff projections which saw a downward revision of the 2024 projections across growth, headline and core inflation. Read more in our Flash: ECB Review – June cut is coming, 7 March.
In the Middle East, US president Biden announced he had directed US military to commence and build a temporary port in Gaza, so that it would be able to ramp up its delivery of humanitarian aid to the Palestinian people in Gaza. Meanwhile, Houthis’ attack on a merchant ship in the Red Sea led to the first fatalities on a merchant vessel, as three people were killed.
In the commodity space, the IEA said it expects oil demand to grow by between 1.2 and 1.3 million barrels per day, down from around 2.3 million barrels per day last year. In its last projection OPEC+ had forecast growth at 2.25 million barrels per day this year.
Sweden officially became a NATO member state thus becoming the second new member to join the defensive alliance after Russia’s invasion of Ukraine.
In Denmark, the pharmaceutical company Novo Nordisk delivered promising results in a Phase-1 trial of a new obesity drug. The subsequent market reaction meant the pharmaceutical giant overtook the electric vehicle maker Tesla in market value.
Equities: Global equities were higher yesterday with several indices setting new all-time highs. There was a lot of fuzz around the ECB meeting but at the end of the day with very little impact on equities. Instead, more classic late-cycle dynamics dominated with cyclical growth names outperforming and investor exuberance increasing. While still important, central banks should play a more secondary role for equities this year. The timing of rate cuts and the exact number of cuts does not matter so much if the soft-landing macro environment continues to unfold. In US yesterday, Dow +0.3%, S&P 500 +1.0%, Nasdaq +1.5% and Russell 2000 +0.8%. Asian markets are broadly higher this morning led by China while Japan is lagging as the currency keeps strengthening. US futures are mixed while European futures are broadly higher this morning.
FI: It was somewhat of a roller coaster ride yesterday in European rates around the ECB meeting. Initially market reacted with Bund yields lower by almost 10bp on the day. However, rates gradually drifted higher through the afternoon and 10y Bunds ended 3bp lower on the day. The move was a parallel shift in the 2y+ area. The strong initial market reaction was somewhat of a surprise since the ECB statement and the staff projections were broadly in line with expectations.
FX: The JPY, one of this week’s outperformer within G10, maintains its gains, trading below 148 vs the USD and below 162 vs the EUR ahead of today’s NFP. EUR/USD advanced further in the US session and starts the day at around 1.0950 as the USD is on the defensive across the board. GBP and the CAD are stronger vs the USD overnight, pushing Cable to fresh year highs at above 1.28. EUR/DKK rose yesterday above 7.4550. EUR/SEK and EUR/NOK are back to the lower end of the last week’s 10-figure trading ranges, at 11.20 and 11.40, respectively. While both crosses are obviously susceptible to the NFP data, the former also eyes a batch of Swedish macro data at 08:00, the Riksbank’s business survey at 09:30 alongside speeches by Anna Breman at 08:00 and Martin Flodén at 12:00.
