Sat, Feb 04, 2023 @ 12:29 GMT
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Decent US Data ahead of Payrolls

Market movers today

Today brings this week’s most important data releases both from the euro area and the US.

In euro area, flash inflation print for December will be released. Individual country data released thus far suggest that while headline inflation probably continued to decline in December, underlying price pressures remain strong. Consensus is looking for core inflation to have picked up from 5.0% in November to 5.1% in December. Going forward, interpretation of euro area inflation data will become more and more cumbersome as country-specific fiscal measures that compensate households for the rising energy costs will also affect consumer price developments.

In the US, it is time for December payrolls. Consensus expects 200k new jobs while a figure around 100k would be consistent with demographic developments and any higher number implies labour shortages are likely to prevail in US jobs market, upholding wage and price pressures. We will also get IMS Services index where consensus looks for a decline to 55.0 in December from 56.5 in November. Factory orders are also expected to have declined in November.

In addition, we have a bunch of ECB and Fed speakers on the wires.

The 60 second overview

US tier-2 jobs data strong: Heading into the payrolls release today we got some tier-2 data out yesterday. Initial jobless claims showed a downward surprise with a decline to 204k (consensus 225k, previous 223k) still signalling a robust labour market. The ADP employment report also surprised to the strong side rising 235k in December from 182k in November (revised from 127k). While it is not a great predictor of non-farm payrolls it still indicates decent labour demand in line with the job openings data released earlier this week, which were also better than expected and pointed to still strong demand for labour.

Fed members signal rate above 5%: We had another three Fed speakers out yesterday. Atlanta Fed’s James Bostic (voter, neutral) stated that “I appreciate recent reports that include signs of moderating price pressures, but there is still much work to do”. Outgoing member Esther George (non-voter, neutral) said that she looked for a rate above 5% going into 2024. Finally, James Bullard (non-voter, hawk) offered a softer statement than usual saying that the policy rate is “not yet sufficiently restrictive but it is getting closer”. He also hinted at a peak rate slightly above 5%, though. The Fed’s latest dot plot showed 17 members seeing the peak rate at 5.125% or above and only two seeing it below. We look for a 50bp hike in February and another 25bp hike in March taking the rate to 5.125% and rates being unchanged after that throughout 2023.The market currently prices a peak around 5% and 35bp of cuts in the second half of the year.

ECB comments: ECB member Villeroy said yesterday that the ECB should reach the terminal rate by summer and then hold suggesting rates would stay there for some time. He also stated that the ECB should be pragmatic and not become obsessed with rate increases that are “too mechanical.” Markets price close to 150bp of further hikes by summer. Central banks have gotten much relief on the inflation front from falling commodity and freight prices but the tight labour markets remain a challenge.

Equities: Stock markets faced headwind yesterday from the stronger labour data and rise in yields and S&P500 lost 1.2%. Stock futures as well as Asian stocks are slightly higher in Asian trading but in waiting mode for the US payrolls report today.

Credit: Issuance in euros slowed yesterday with only one dual-tranche corporate launched, while the FIG segment saw a Tier 2, a senior preferred as well as two covered bonds brought to the market. The Tier 2 note was the first such print in euros this year, but mirroring the reception of this week’s AT1 prints reception was solid, suggesting good appetite for bank subordinated debt. During the day CDS indices widened slightly giving back some of Wednesday’s tightening, with iTraxx Main widening 2bp to 86bp while iTraxx Xover widened 9bp to 449bp.

FI: It was a volatile day in the global financial markets where yields initially rose significantly after the solid rally seen since Monday. However, in the afternoon yields declined and global bond yields ended with a more modest rise. The dovish comments from one of the hawks at the Federal Reserve (Bullard) had limited impact on the market, as the focus is on the labour market report this afternoon.

FX: Yesterday’s session was characterised by Scandi weakness as both EUR/SEK and EUR/NOK moved sharply higher to levels as high as 11.27 and 10.82, respectively. The USD gained with EUR/USD back close to the 1.05-level while EUR/GBP still trades north of 0.88.


Norway releases industrial production figures but otherwise no data in Nordics today.

Danske Bank
Danske Bank
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