In focus today
This morning we will get Swedish inflation data for January. We expect an increase in CPIF inflation to 3.2% y/y, while core inflation (CPIF excl. Energy) should fall to 4.4% y/y.
This week’s calendar contains several important releases to watch. Both the Fed and ECB will publish minutes from their latest meetings, while February PMI data for Japan, Europe and the US will be in focus. Overnight, we may see a cut in the Chinese Loan Prime rate as the economy and China’s markets needs more fuel.
Note that today it is Presidents’ Day and US equities and bond exchanges will be closed.
Economic and market news
What happened over the weekend and on Friday
US producer prices rose more than expected in January, with Friday’s release showing a 0.3% m/m increase (cons. 0.1%). The beat echoes the stronger-than-expected CPI release for January. In both cases services costs were the main culprit, although there could be a one-off January effect with higher-than-normal price adjustments to make up for past cost increases. Additionally, the University of Michigan consumer survey showed an increase in short-term inflation expectations to 3.0% (prev. 2.9%), while 5-10-year expectations remained unchanged at 2.9%. In response, markets dialled down slightly the expectations for a June rate cut, while the USD initially gained but finished the session close to flat.
We heard hawkish tones from ECB’s Schnabel in a speech on Friday, when she said that weak Eurozone productivity growth may postpone the return to the 2% inflation target. As firms are facing rising unit labour costs, low productivity growth increases the risk that the bulk of these costs are being passed on to consumer prices. Schnabel concluded that the low productivity growth is a strong argument for not adjusting the policy stance too early. Our base case is still that the ECB will deliver its first rate cut in June.
Equities: Global equities were marginally lower Friday as US markets dropped while other regions were higher. Equities were still higher for the week despite the short end of the yield curve pushing higher. Main takeaways last week were the return of inflation fear and in that perspective, it was interesting to note the resilience in equities. With yields higher it was not surprising to see the value outperforming and growth underperforming including the US. Small caps had a very volatile week, but they still managed to outperform large cap by 1%. Asian countries are mostly higher this morning with all markets trading again after the Lunar New Year. European futures are lower this morning while US futures are slightly higher.
FI: The stronger than expected US producer prices sent US Treasury yields rising on Friday as the market continues to reprice monetary policy expectations. We have now priced out two rate hikes in 2024 from the Federal Reserve since early February. This is also confirmed by recent comments from various Federal Reserve Officials. We have seen much the same picture for the European rates, where we have also priced out almost two hikes in 2024.
FX: Last week’s price action in FX markets failed to deliver any major inter-week moves in a set of sessions primarily characterised by volatility surrounding the US CPI print and a subsequent reversal of those moves. EUR/USD traded as low as 1.07 but ended the week at close to unchanged levels just south of 1.08. The CHF traded somewhat softer on the back of lower-than-expected CHF-inflation while both SEK and NOK posted modest gains.
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