In focus today
In the US, the University of Michigan’s preliminary consumer survey (including inflation expectations) and January producer prices figures (PPI) are due for release in the afternoon. Following the strong CPI earlier this week, markets will be very attentive to any additional signs of inflationary pressures building up.
In Sweden, the LFS survey is released this morning. We focus on employment and hours worked data. Recently, employment has been flat while hours worked recovered by year-end. We expect these positive tendencies to continue rather than deteriorate.
Economic and market news
What happened overnight?
In Japan, BoJ Governor Ueda stated that the central bank will consider adjusting monetary policy when stable achievement of its inflation target comes into sight. Ueda suggested that even without negative rates, monetary policy will remain accommodative.
What happened yesterday?
In the US, retail sales came in significantly lower than expected at -0.8% m/m (cons: -0.2%). However, one-offs such as winter storms distorted the print, making the drop less dramatic. Initial claims continued to surprise on the downside, declining by 8,000, while the NAHB (construction PMI) increased to 48 in February, posting the third consecutive monthly gain. Finally, the regional manufacturing indicators from New York Fed (Empire) and Philadelphia Fed (‘Philly-Fed’) came in stronger than expected in January, providing further indications that the industrial cycle is now turning towards a recovery phase.
In the UK, GDP edged down in Q4, printing -0.3% q/q (cons: -0.1%). Following the Q3 print of -0.1%, the UK economy is in a technical recession amid two consecutive GDP contractions.
In the euro area, the European Commission revised its economic forecasts, now projecting GDP growth to be 0.8% instead of 1.2% in 2024, while inflation is expected at 2.7% in 2024 (vs. 3.2% earlier) and 2.2% in 2025 (unchanged). This is close to identical to the latest December staff projection by the ECB. ECB President Lagarde repeated in her public remarks yesterday, that the disinflation process is well underway. However, she also stressed the need for more confirmation before cutting rates, emphasizing that wage growth continues to be strong amid tight labour markets and workers’ demands for inflation compensation.
Equities: Global equities were higher yesterday although macro data was not overwhelming. We saw broad-based gains, but small caps outperformed together with what we could call the three odd ones; REITs, banks and utilities. Hence, adding this all up the message from investors was that goldilocks continues. Or, put differently, the too hot CPI data from Tuesday and the too weak retail sales data from yesterday should not persist. One thing worth noting is that small caps outperformed substantially yesterday and have outperformed large cap by 1% the last 5 trading days despite the sell-off on Tuesday, higher yields, and the upside surprise in US CPI data. In US yesterday, Dow +0.9%, S&P 500 +0.6%, Nasdaq +0.3%, Russell 2000 +2.5%. The strong market sentiment continues across Asia this morning with Chinese H-shares leading the advances. European futures are higher while US futures are mixed.
FI: Long-end EGBs rose early in yesterday’s session, but the rally faded in the second half of the day. 10Y Bund yields ended up by a couple of basis points, while peripheral bonds fared slightly better. German ASW-spreads tightened with credit spreads in line with the tendency over the past week. US yields reacted somewhat mixed on the string of data out yesterday, rising marginally across the curve throughout the day.
FX: In a relatively calm session yesterday the USD lost further ground with only TWD and IDR performing worse in Majors space. Most other currencies were caught in tight ranges with notably both EUR/NOK and EUR/SEK doing very little. EUR/GBP remains close to the 0.855-threshold while USD/JPY has moved marginally below the important 150-level.
