In focus today
Today is a relatively quiet day on the global data front.
In Denmark, CPI inflation is released for February. We expect that inflation decreased to 1.0% y/y in February from 1.2% y/y in January, largely driven by food prices as the February price surge from last year no longer features in the measure. Additionally, Danish foreign trade and current account data for January is also scheduled for release.
In Norway, February inflation figures are released. We expect Norwegian core inflation to remain unchanged at 5.3%, as import prices are likely to have risen again and will counteract somewhat lower food prices. If proven right, this would be 0.2 pp. lower than Norges Bank expected in the December MPR and in isolation should be an argument for a less hawkish Norges Bank in March, but far from a game changer.
Focus this week will be on inflation releases, with the star of the show being the US CPI inflation release on Tuesday. January’s surprisingly strong print dampened rate cut expectations for 2024 in tandem with other strong macro data. Hence, February figures coming in hotter than expected could send rate cut expectations further south. Our call is for the first Fed cut at the May meeting. Furthermore, in China we get credit and money growth between 9 and 15 March but there is no fixed date or time. The credit data is very volatile from month to month, but the trend has been relatively robust in recent months reflecting the stimulus by the government.
Economic and market news
What happened overnight
In Japan, the final Q4 2023 GDP print was released. The print was revised up to 0.1% q/q from -0.1% q/q, indicating that the Japanese economy averted a technical recession in Q4. Moreover, speculations regarding the Bank of Japan hiking rates in March flared up slightly amid expectations of robust pay increases in this year’s annual wage negotiations. This led to the Japanese yen moving somewhat higher.
In China, Chinese regulators engaged in talks with financial institutions and private debt to bolster financing support and extend debt maturity for Vanke, a state-backed developer. Recently, the property developer has faced pressure as investors have sold shares and bonds due to liquidity concerns, prompted by reports of the state-owned entity seeking debt maturity extension with some insurers.
What happened over the weekend and on Friday
In the US, on Friday, the February Jobs Report sent mixed signals. Non-farm payrolls (NFP) came in higher than expected at +275k (cons: 200k). However, at the same time, past months’ figures were revised down by a cumulative 167k, offsetting the upside surprise in February. In contrast to the NFP, the household survey (which counts the number of employed workers) was markedly weaker at -184k (Jan: -31k). Coupled with the labour force growing by +150k, the unemployment rate climbed higher to 3.9% from 3.7%, indicating that some slack is slowly building in the labour markets, which is good news for the Fed. On the wage front, average hourly earnings growth declined considerably to 0.1% m/m SA, mainly reflecting a rise in the average hours worked, with wage sum growth continuing its declining trend seen recently.
On the political front, the US government avoided a partial shutdown as six out of 12 individual appropriations bills were signed into law by President Biden. However, with the deadline for the remaining funding bills set for 22 March, a partial shutdown is still possible.
In Europe, euro area wage growth for Q4 2023 was released on Friday. The figure came in at 4.5% y/y down from 5.1% y/y in Q3. Overall wage growth remains too elevated for a 2% inflation target. Hence, we believe that the ECB most likely awaits Q1 2024 data to become confident that wage growth is consistently decreasing, which serves as a key reason why we expect the ECB to start lowering rates at the June meeting.
In China, the February CPI was released on Saturday. The print surprised to the upside, with Chinese consumer prices ticking higher for the first time in six months, coming in at 1.0% m/m and 0.7% y/y (cons: 0.7% m/m, 0.3% y/y). The positive figures are strongly attributed to a spending boom following the Lunar New Year.
In Saudi Arabia, state-owned Saudi Aramco raised its dividend to nearly USD 100bn amid reporting its second-highest annual profit ever despite lower oil prices. The payout stands as the primary revenue source for the Saudi government, which seeks to fund its ambitious modernization plans via the generated profits.
In the geopolitical space, US, French, and British forces retaliated against a Houthi attack on a bulk carrier and destroyer by striking dozens of drones in the Red Sea area. Additionally, the European Commission announced on Friday that a maritime aid corridor could commence operations between Cyprus and Gaza over the weekend, in a project financed by the UAE. However, as of early this morning, the vessel remains docked in Cyprus.
Equities: Global equities were lower Friday, dragged down by US and long duration growth stocks. The pullback in some the best performing names over the last year came despite a day with solid macro figures basically confirming the current investment narrative of a soft landing. Please note both small caps and banks were outperforming and 15 out of 25 industries in the US were higher, highlighting that the sell-off was being macro related. In US on Friday, Dow -0.2%, S&P 500 +0.7%, Nasdaq -1.2% and Russell 2000 -0.10%. Japanese equities are sharply lower this morning as Bank of Japan is increasingly expected to tighten policies soon. US and European futures are lower as well.
FI: US Treasury yields continued to decline last week as 10Y US treasury yields declined some 12-13bp during the week. We have seen a similar move in the 10Y German government bond, where the yield has declined some 13-14bp.
Furthermore, the spread compression in both the German ASW-spreads and the BTPS-Bund spread has been relentless. The Bund ASW-spread is slowly moving towards 30bp and the 10Y BTPS-Bund is gradually tightening towards 125bp. Short-term the momentum seems to be for a tighter as there is plenty of supply from Germany also relative to Italy. This week Germany will tap EUR 9bn in the 2Y and 10Y segments, while Italy will tap EUR 8.5bn in the 7Y to 15Y segments.
FX: The USD had its worst week since December losing out vs the rest of G10, with JPY as the winner with a 2% appreciation. The SEK also had a strong week, with EUR/SEK once more challenging the lower bound of the recent range (11.20). This week brings a lot of interesting macro data, which are bound to influence FX trading.
