In focus today
In Norway, focus turns to unemployment data. The registered unemployment rate has declined in recent months, which could indicate growth slightly above trend. However, employment growth has eased, suggesting that the drop in unemployment might be partly due to slower growth in labour supply. We expect the unemployment rate s.a. to remain at 2.1% in March, with a slight increase in the number of unemployed compared to February.
Also in Norway, we get retail sales – which have shown significant fluctuations in recent months – partly due to problems with seasonal adjustment around the Christmas holiday. However, higher electricity consumption in January likely resulted in higher electricity bills in February, which may have dampened retail trade. We thus expect retail sales s.a. to fall by 1% m/m in February.
In Spain, the first inflation print for March is expected to show a sharp increase in HICP inflation to 3.8% y/y (prior: 2.5%). The increase is solely due to energy prices, as gasoline pump prices have risen on average 12.5% m/m. The rise in Spanish HICP inflation is expected to outpace the euro area, where markets anticipate an increase to 2.6% y/y (prior: 1.9%), due to a larger base effect on energy price. Last March, HICP energy fell 3.7% m/m in Spain compared to only 1.4% m/m in the euro area.
Lastly, several central bank speeches are on the menu. ECB’s Schnabel is set to speak in the afternoon, and we also have two speeches from Fed officials. The market will be looking for comments on inflation and the war.
Economic and market news
What happened overnight
We have changed our ECB call and now expect two 25bp hikes in April and June, bringing the deposit rate to 2.50%. We then expect the ECB to cut policy rates by 25bp in March and April 2027, respectively, returning the deposit rate to 2.00%. Comments from ECB’s Governing Council members have been significantly more hawkish than Lagarde’s view at the last monetary policy meeting. This makes 50bp hikes by YE 2026 more likely than ECB remaining at 2.00%, though the latter cannot be ruled out. Our call is highly contingent on the developments in Iran.
We also update our Riksbank call in Reading the Markets Sweden, 27 March, and now expect hikes in May, June and August to 2.50% (previously hikes in Dec-26 and Mar-27 to 2.25%). We then expect gradual cuts during 2027 down to 2.00%. With the ECB likely to hike in April and June, this allows the Riksbank to move in May. We do stress, however, the uncertainty around this call and, given the wide range of potential outcomes, it is possible to see both a more severe scenario in which the Riksbank will be forced to tighten even more, as well as a more benign one in which the Riksbank could stay on hold.
What happened yesterday
In Norway, Norges Bank unanimously held the key policy rate unchanged at 4.00% in a ‘hawkish hold’. The newly included “Summary of the Committee’s deliberations” showed how some members had argued for an immediate hike, while others preferred to await more information on the prospects for inflation. “Judgement” was used to lift the rate path by 20-45bp, showing a short-term desire to tighten policy. We have revised our Norges Bank call, now expecting two 25bp hikes, in June and September, this year, followed by four 25bp rate cuts in 2027, and a final 25bp cut in 2028.
In central bank space, several Fed officials commented on the inflation outlook, Fed governor Lisa Cook stated that the war in the Middle East change the risk outlook for now and inflation was a bigger concern than the labour market. Other Fed officials stated that they would prefer to keep rates on hold given the uncertainty of the war and the impact on growth and inflation.
In the European Parliament, MEPs approved the EU-US Turnberry trade deal, which eliminates EU tariffs on most US industrial goods and caps tariffs on EU exports to the US at 15%. The deal has been slightly modified, now including safeguards such as requiring US compliance with the tariff ceiling before implementation. The agreement now moves to member state negotiations before a final ratification. While the temporary 15% tariff had limited impact on aggregate euro area exports in 2025 due to front-loading of Irish medicine exports, economies like Germany, heavily exposed to the US, have seen exports decline.
In France, the March business confidence survey revealed a rise in manufacturing selling price expectations, but far below the 2022 inflation episode. It is early days of the supply shock, so we do expect the index to rise further in the coming months. However, for the ECB’s Apil meeting, this is not particularly hawkish.
Equities: Equities retreated yesterday. US especially fell hard, with S&P 500 -1.7% and Nasdaq -2.4%, following a triple whammy of negative triggers. First, investors questioned the de-escalation trade again, sending both oil prices and yields higher and thereby a sharp FCI tightening, which in turn took its toll on equities and especially cyclicals and growth stocks. Secondly, memory- and semis reversed lower after Google presented its Google Turboquant innovation, saying it could reduce the amount of memory required to run large language models by up to six times. While Micron was down -7% on this, it is good news for the equity market in general we believe, as it could ease the pressure on the hardware bottlenecks. Finally, big tech was lower on legal risks, following a jury verdict on Meta, sending the stock down -8%. Futures are about 0.5-1% higher this morning, as oil futures retraced somewhat lower.
FI and FX: The US decision to extend the pause on energy attacks on Iran had only a very short-lived impact on markets. Brent crude dripped, but quickly returned to the USD107/bbl level, EUR/USD briefly spiked, and the 10Y US Treasury yield temporarily fell below 4.40%. EUR/NOK fell sharply yesterday and briefly touched 11.10 after Norges Bank signalled upcoming rate hikes. The pair partially reversed course as falling equities weighed on the NOK.
