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More High Inflation Prints, Now to the Scandies

Market movers today

Today, focus is on Scandi data releases with Danish and Norwegian CPI inflation prints and the monthly Swedish GDP indicator due out, see in the Nordic macro section below.

In the euro area, Sentix Investor Confidence and unemployment data are due out.

In the euro area this week, there will be focus on whether Mario Draghi’s plans to run in Italy’s Presidential election and whether Macron is finally launching his official re-election bid in France. We will also focus on the sharp rise in new omicron cases and developments in energy prices.

Later this week, we will also be looking out for US CPI figures on Wednesday and monthly GDP data out of the UK on Friday.

The 60 second overview

US labour market: We got a mixed jobs report on Friday with weak jobs growth but high wage growth. Labour demand is high but it is difficult for employment to increase significantly when the labour force remains subdued due to Covid. We think the report strengthens the case for tighter monetary policy. The labour market is quite tight and there are likely long-lasting damages to it.

Inflation: Euro area headline inflation posted a new record in December with a slight uptick to 5.0% in December as particularly food prices added further to the huge energy contribution. Core inflation also increased but from a mom perspective core price momentum remains fairly muted.

Equities: Massive sector rotation last week, with banks outperforming tech by 15 percentage points. Such sharp rotation has not been seen in a week since March 2021. While high value stocks felt the pain from rising yields multiple times last year, this time the rotation also spread into long duration stocks, such as real estate, which has not been the case as much earlier this year. Valuation has been the key theme, while the segregation between defensive and cyclicals has played a less crucial role. The rotation lingered on Friday, with energy and banks gaining 1.5%, while tech and consumer discretionary sold off 1-2%. S&P 500 closed down -0.4% (-2% for the week), Nasdaq -1% (a massive -8% for the week), Dow unchanged and Russell 2000 -1.2%. Asian markets are turning a corner this morning, trading slightly higher. US futures are following, led by Nasdaq as investors wish to buy the dip.

FI: Friday’s price action will be remembered for the stronger-than-expected wage growth in the US labour market report. A mostly sideways trading session until the release was followed by a sell-off of almost 7bp in the 10y treasuries, before some retracement which left the 10y UST at 1.76% (+4bp on the day). Bunds ended 2bp higher and with the issuance of the new DBR Feb32, we are close to flirting with the 0% level of Bunds for the first time in almost 3 years. Markets did not react to the high euro area inflation prints.

FX: EUR/USD touched the 1.135 level and GBP/USD rallied towards 1.36 as broad USD took a hit following a mixed bag of news on the US jobs market. EUR/SEK dropped below 10.30 and EUR/NOK held steady close to 10.05 on Friday.

Credit: There was a slight risk-off tone in credit on Friday with iTraxx Xover closing 1bp wider and Main 0.6bp wider. HY bonds were unchanged and IG 0.5bp wider. While the primary market kicked 2022 off last week, public holidays kept overall issuance subdued, and hence we expect activity to pick up this week.

Nordic macro

Today in Sweden, a number of growth indicators for November are released. So far, hours worked and real net good exports have been released, both showing a slight decline over the month. Coming up is production, consumption and the overall GDP indicator. As the surge in the Omicron virus was not widespread at this point we expect further gains in all these, suggesting adding to Q4 GDP.

In Norway, core inflation seems to have bottomed out after falling sharply since the summer. We expect it edged up from 1.3% y/y in November to 1.4% y/y in December. In the coming months, the risk is to the upside, as the strong growth in commodity and energy prices and freight costs will probably also push up consumer prices, but we expect this effect to be most evident in the January figures.

In Denmark, we get December CPI inflation and we expect it was unchanged at 3.4%. On the one hand, electricity prices have kept climbing higher, but on the other hand we have seen a significant decline in fuel prices following the plunge in oil prices in late November. We got some signs of a pick-up in the underlying price pressure in November as businesses have been screaming for labour and supplies. It will be very interesting to see if these signs are reaffirmed. The increasingly tight labour market indicates core inflation should pick up.

Danske Bank
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