Market movers today
We have a very light data calendar ahead of us today where US markets are closed due to President’s Day.
The data calendar for this week is also relatively light. The most interesting data points are preliminary European and US PMIs, which will give an indication of the condition of the industrial cycle. We look for an increase in the US, while the index for Europe is likely to show that the recent upward trend has ended. However, both indices will show that activity remains solid.
In the UK, focus is on the Article 50 debate in the House of Lords, which begins today. The bill is not expected to be delayed and the UK remains on track to trigger Article 50 by the end of March, perhaps at the EU summit in Malta on 9-10 March.
In the euro area, we expect slightly weaker consumer confidence in February in line with the turn in other sentiment indicators. That said, as the unemployment rate continues to decline, we expect consumer confidence to remain at a high level, thereby pointing to continued solid growth in private consumption.
Selected market news
The week starts with a modest positive tone on Asian bourses where most regional equity indices trade higher this morning following the positive close in the US on Friday.
With little on the agenda today, markets are likely to dwell on the political situation in Europe, with the upcoming presidential election in France on 23 April and 7 May as the most noteworthy event. Polls released on Friday showed that the election is still a very open race. According to a poll from Ifop, the National Front’s Marine Le Pen remains in the lead in the first round with 26% of the votes, Emmanuel Macron and Francois Fillon are both tied in second place with 18.5% of the votes, while the Socialist Party candidate Benoit Hamon is at 14% and Far Left candidate Jean-Luc Melenchon 11.5%. Speculation that Hamon and Melenchon would unite under a single candidacy in order to boost the chance that the left wing proceeds to the final round was the main driven behind the 6bp widening of France 10-year yields versus Germany on Friday.
In Sweden, CPI, CPIF and CPIF excluding energy were all a 10th below the Riksbank’s forecasts, printing 1.4% y/y, 1.6% y/y and 1.2% y/y, respectively on Friday. Looking ahead, we expect all measures to print below the Riksbank’s forecasts this year. Most importantly, we see a significant widening compared with the Riksbank’s forecast for CPIF excluding energy in particular. To make the story short: wage cost pressure is too low to boost domestic inflation sufficiently, in our view, and the upcoming wage round will give no comfort here. With a stable to slowly appreciating Swedish krona, import prices will soon be back to deflation levels again as long as global consumer goods prices continue to fall. For more details, see Flash Comment – Sweden: January inflation again below Riksbank’s forecasts,17 February.
