Fri, Jan 27, 2023 @ 10:55 GMT
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A New Year, But Still Inflation and Central Banks in Focus

Market movers today

A new year kicks off with continued focus on central banks and inflation, as well as on signals of how long and deep a recession are we heading into. For inflation pressures to cool off, further tightening of financial conditions and weaker economic activity is still needed.

The week starts with December manufacturing PMIs being released from the euro area and from Scandinavia. Indices are widely expected to remain below the 50 threshold implying a recessionary environment albeit it seems that activity has continued to recover from October lows. Overnight, we will also get manufacturing PMI data from China.

Later in the week, on Tuesday, December flash inflation print from Germany is due, while on Wednesday the focus will be in the US manufacturing data and FOMC minutes.

Friday will be even more interesting as we will get the December flash inflation print from euro area ahead of US nonfarm payrolls in the afternoon.

UK and US is out on public holiday today.

The 60 second overview

Spanish inflation: Spanish inflation was released on Friday and was the first of many to come with headline inflation lower than the core inflation on an annual basis. Headline came in slightly lower than consensus at 5.6% yoy. This is 1.1pp drop from the November print. That said, underlying inflation continued to rise as core inflation came in at 6.9% yoy vs. 6.3% previous. That is a rise in underlying inflation of 0.8% mom.

China COVID: President Xi said in his new year’s address that China is now entering a new phase in the fight against covid although that there are still tough challenges ahead, thereby also acknowledging that the zero-covid policy will not be applied again. Between Christmas and new years eve, Italian media reported that 50% of passengers from China had COVID, although reports suggest no new variants.

Croatia joined the euro on 1 January. There are now 20 euro area member states.

FI: European rates have generally trading higher in the final trading sessions of the year. Hawkish comments from Knot, Chinese reopening and Spanish underlying inflation continuing higher all supported the rates up trading environment. Bunds are now trading at the 2.57% level. Looking at the ECB pricing, markets sees the ECB deposit rate peaking at the 3.58% in Summer next year. UK and US is out on public holiday today.

FX: EUR/USD starts off the new year around 1.07, the highest levels seen since early June. EUR/SEK is also trading elevated, as the recent spike to 11.15 and above is most likely somewhat overdone and premature in our eyes. EUR/NOK remains in consolidation within the same range as was seen during most of Q4, currently sitting just above 10.50.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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