Market movers today
Today we zoom in on Nordic inflation with March CPI figures out of Denmark and Norway. In Denmark, we expect a 0.6 percentage point decline to 7.0% driven by base effects from energy prices. In Norway, we expect a 0.2 percentage point increase in core inflation to 6.1% (see more below).
In the euro area, we expect a weak release of February retail sales, as the service sector is currently the strong part of the economy.
Besides the incoming data, markets will digest the US jobs report from Good Friday.
In the remainder of the week, US CPI figures on Wednesday will be key to markets.
The 60 second overview
US: Following a streak of weaker-than-expected macro data last week (ISM, JOLTs, ADP), Good Friday’s US nonfarm payrolls were strong enough to lift US Treasury yields over Easter despite coming out slightly below expectations (+236k; consensus 240k; Danske 250k; Feb revised higher by 15k). While other indicators suggest that labour demand is already cooling, and sectors such as retail trade and manufacturing recorded job losses, recovering labour force participation (62.6%; from 62.5%) continues to ease labour shortages especially in the leisure and hospitality sector (+72k jobs), supporting headline jobs growth. Average hourly earnings growth ticked higher to +0.3% m/m (from 0.2%), which means that wage sum growth still exceeds pre-pandemic average levels. The unemployment rate remains very stable around the recent lows at 3.5% (from 3.6%), which NY Fed’s Williams called a ‘striking development’ on Monday. NY Fed’s consumers’ 1y inflation expectations ticked even higher in March to 4.7% (Feb 4.2%), which together with the resilient labour markets continues to support our base case for one more 25bp Fed hike at the May meeting. US equity markets recovered from an early dip as markets reopened from the long Easter weekend on Monday, with investors now pricing a more than 80% probability for another 25bp hike.
Bank of Japan: JPY weakened yesterday after the new Bank of Japan (BoJ) governor Ueda in an inaugural news conference reiterated that the current ultra-loose monetary policy is appropriate given the economic conditions. The new governor noted that there are “positive developments” around wages and if that continues, there is “enough possibility that this would lead to a more stable 2% inflation”. He also added that if the BoJ realises that inflation is above target in a sustainable manner and decides to normalise monetary policy, it will have “to make very big policy adjustments” and it will “cause big disruptions in the economy and markets”. Thereby Ueda communicated that any changes to monetary policy will be gradual and with a cautious approach. After Ueda’s comments yesterday, it seems likely that the BoJ will keep monetary policy unchanged at the next meeting on 28 April. There is, however, a chance that the BoJ underestimates the current price pressures in Japan, and we still think that the BoJ will at least have to tweak its YCC during Q2.
China’s consumer inflation slowed in March despite a pick-up in economic activity, while producer prices contracted further. CPI rose 0.7% from a year earlier (from 1% in February) and PPI dropped 2.5% in March. The figures suggest some weakness in domestic demand and pricing power remains despite the post-Covid reopening.
Equities: Global equities ended higher yesterday as US equities rose into the late hour trading. Europe was closed for the final day of Easter and hence and not surprising to see subdued activity. Limited sector and style rotation as yields were more or less unchanged yesterday and the macro calendar was thin. The factor of fading bond volatility still supports equities. Implied bond volatility (MOVE) peaked on 15 March and since then equities are up by 6%. The MOVE index is still twice the average of the last 10 years and hence it is fair to assume more tailwind to equities through increased confidence if bond volatility continues to come down. In US yesterday Dow +0.3%, S&P 500 +0.1%, Nasdaq -0.03% and Russell 2000 +1.0%. Asian markets are higher this morning lifted by Japan where the new Bank of Japan governor Ueda signalled a continuation of the Kuroda style loose monetary policy. European futures are higher this morning and the same goes for most US indices though we see more marginal increases in the US.
FI: US Treasury yields rose modestly yesterday after the solid rise on Friday following the better than expected non-farm payrolls released on Friday. 2Y US Treasury yields also rose a few bp to 4%. However, we are still far from the 5% level in 2Y Treasuries that we saw prior to problems with some of the US regional banks.
FX: Within G3, USD is the outperformer over Easter holidays, after resilient US job numbers on Friday and where, in particular, USD/JPY gained after the new Bank of Japan governor said yesterday that current policy is appropriate. Scandies lost ground vs EUR in thin liquidity over Easter. Both EUR/SEK and EUR/NOK breached 11.40.
Credit: CDS indices were broadly wider last week heading into the Easter holiday, with iTraxx Main wider by 4bp to 88bp and Xover by 23bp to 459bp. Last week did see a fair amount of issuance with European banks returning in unsecured format again following a long pause caused by concerns over the state of the banking sector. Financial issuance during the week totalled EUR 9.1bn (including EUR 5.3bn in covered bond format), while corporate issuance amounted to EUR 1.4bn.
We expect Danish March CPI inflation declined to 7.0% from 7.6% in February. Energy prices are likely to be the key driver, with fuel prices slightly lower as opposed to March last year, when prices soared. Generally, we expect to see underlying price pressures in the economy remain elevated.
Norwegian core inflation surprised to the downside in February, with the annual rate slowing to 5.9%. This was due partly to a price war causing food prices to rise much less than feared. The big question, of course, is how much of this will have reversed in March. In addition, Norges Bank’s regional survey sent clear signals that firms supplying goods and services to consumers are still planning substantial price increases, which could mean keep inflation high. Thus there is still great uncertainty, but we reckon that the annual rate of core inflation climbed to 6.1% in March.