Market movers today
German factory orders will reveal if manufacturing activity rebounded in January, after slumping at the end of last year.
Fed chair Powell will present his semi-annual Monetary Policy Report to the Senate Banking Committee. Ahead of the February jobs report on Friday, he will probably try to strike a balance between highlighting progress in slowing inflation without job losses, while also noting that peak rates have not yet been reached while inflation risks remain skewed to the upside.
Sweden’s Riksbank Governor Thedéen speaks on the current economic situation.
In Denmark and Norway industrial production for January is on the agenda.
The 60 second overview
Markets: It has been fairly quiet overnight. Chinese equities have been supported by comments from the general manager of the Shanghai Stock Exchange that state-owned enterprises need better access to funding. Otherwise most other equity indices and futures are trading only marginally in green. US yields are slightly lower, EUR/USD remains just south of 1.07 and commodities remain little changed.
Reserve Bank of Australia: This morning RBA hiked the cash rate by 25bp to 3.6% in a decision widely anticipated in markets. Meanwhile, RBA’s accompanied message to markets was slightly to the dovish side with Governor Lowe emphasising a heightened focus on incoming data in deciding “when and how much further” rates need to be hiked. Also, Lowe’s comments on recent data releases suggested much less concern as to the topside risk to inflation. Markets reacted by pricing in a slightly lower peak in policy rates around 4.0% (from 4.1%) which also weighed on the AUD currency in the magnitude of roughly 0.5%.
Oil prices. Yesterday Brent Crude rose to around the USD86/bbl level and hence continued the trend higher from the last week. In the big picture oil prices remain range bound with little breaking news to break out of the range. Recent good news on the world economy has not caught the attention of the oil market either. We still forecast Brent to trade in the USD80-90/bbl range this year.
Euro Area retail sales: Despite the weakness in December, euro area retail spending still had a muted start to the year. Real retail sales were up 0.3% m/m in January (-2.3% y/y), on the back of stronger food spending, but the downtrend continued for other goods. Despite the ongoing recovery in consumer confidence, it seems private consumption is unlikely to return as a major growth driver in Q1.
Switzerland. Swiss CPI for February surprised sharply to the upside printing 3.4% y/y (consensus: 3.1%, prior: 3.3%). Likewise, core inflation ticked higher at 2.4% y/y up from 2.2% in January. CHF initially rose considerably, but ended up erasing the gains during the afternoon. The higher than expected inflation print further underpins our long-held view that inflation has not come sufficiently down for the Swiss National Bank (SNB) to conclude its hiking cycle or allow a significant depreciation of the Swiss Franc. We continue to expect the SNB to hike 25bp at its next week meeting in March with upside risk to our call.
FI: It was again a dramatic day in the global fixed income markets. It started with a solid decline in bond yields and interest rates, but at the end of the day, the 10Y German government bond yield had risen 10bp and 10Y Treasuries had risen some 5-6bp from the lows on Monday. The only markets where yields were not rising were Sweden and Norway. Furthermore, Denmark only saw a modest rise relative to Germany. The 10Y spread between Norway and Germany is now testing 50bp, while the 2Y spread between Norway and Finland is at 25bp.
FX: Broad EUR appreciation yesterday though EUR/USD remains below 1.07 ahead of Jerome Powell’s Congressional testimony at 16:00. Weak Scandies continue. EUR/NOK took another big leap and is now testing year highs at 11.15. EUR/SEK approaching 11.20 resistance area ahead speech by Erik Thedéen at 08:30, a potential market mover.
Credit: Very strong primary activity kicked off the week in the corporate bond market. A wide range of companies announced new issues. In the Nordics most notably Vestas Wind Systems A/S announced intentions to launch a new EUR500m Sustainability-Linked bond while Neste Oyj announced intentions to launch a EUR6y and a EUR10y Green Senior unsecured bond. Overall, the positive market sentiment continued in the secondary market with iTraxx Main 2bp tighter at 74bp while iTraxx X-over tightened 11bp to 385bp.
Nordic macro
In Sweden, we will get the monthly budget balance from the Swedish National Debt Office (SNDO). The SNDO’s two week old forecast suggests a surplus of SEK58.7bn for February. This is a seasonal quite normal figure for February, but we also note that electricity support package has started to be paid out since Feb 20 which might generate some uncertainty around this number.
Riksbank governor Erik Thedéen will speak on the topic “The situation in the economy” at 8.30 CET. The speech will not be published but media is invited so look out for news flashes.
