All Eyes on the Fed

In focus today

In the US today’s main event will be the FOMC meeting. The Fed is widely expected to maintain monetary policy unchanged. Focus will be on any clues about the timing of the first rate cuts as well as the end-game for QT, which the Fed agreed to discuss in more detail at today’s meeting. The Fed will also publish its updated rate and economic projections. For more details, see Fed preview, 15 March.

In the euro area focus turns to consumer confidence. Weak consumer confidence is likely the reason for the low consumer spending in the euro area, hence we follow consumer confidence closely to estimate when private consumption will improve. An uptick in private consumption is expected to be the main growth driver this year.

In the UK, we get inflation data for February at 8:00 CET. Inflation momentum has been easing broadly and we expect further downticks across headline and core inflation. Consensus expects headline to decline to 3.5% (from 4.0%) and core to 4.6% (from 5.1%). While the release is important in a broader context, we do not believe that it will change the outcome of the Bank of England meeting tomorrow in the absence of a sharp surprise in either direction.

In Sweden, Deputy Governor Aino Bunge speaks on the Riksbank’s perspectives on cash. Her appearance is the last one before the monetary policy decision and publication of the Monetary Policy Report next week, 27 March. At 10:30 CET Minister of Finance Elisabeth Svantesson presents the Ministry of Finance’s latest forecast on the economic situation, where no major news is expected.

Economic and market news

What happened overnight

In China, the one-year loan prime rate and the five-year loan prime rate were kept unchanged at 3.45% and 3.95%, respectively, fully in line with consensus.

What happened yesterday

In the euro area, Germany unveiled a new EUR 500 million military aid package to boost Ukraine’s military. The aid package is part of an already announced EUR 8 billion support budget for 2024.

On the macro front, the German ZEW data was better than expected in March, though the economic situation remains very weak. This suggests that the German economy is likely to trail behind its European peers in 2024. GDP growth is expected to settle around -0.1% q/q in Q1 2024, but with still solid labour markets, slowly recovering real incomes and global manufacturing cycle turning higher, a steep recession will still likely be avoided. Moreover, ECB Vice President Luis de Guindos said that the ECB would be ready to discuss a rate cut in June, given that sufficient data would be available by then – though he noted that rapid wage growth and poor productivity might pose challenges to this schedule. De Guindos adds to a growing list of policymakers who have emphasized the June meeting as a potential starting point for policy easing.

In Sweden, Deputy Governor Martin Flodén stated on Tuesday that “it has become increasingly clear that inflation is falling back towards the target. Last week’s inflation outcome reinforces this picture. There is still a possible risk of setbacks, but the risk of inflation becoming entrenched at high levels has diminished”.

Equities: Global equities were higher yesterday, with the leading index S&P 500 locking in a new record closing high, driven by value, and notably energy stocks (oil prices up 7% in the last five sessions). Yields were lower for a change, also boosting appetite for equities. With macro data surpassing consensus expectations, we had the perfect combination for higher equities. US main indices yesterday saw Dow +0.8%, S&P 500 +0.6%, Nasdaq +0.4%, and Russell 2000 +0.5%.

FI: There was a modest decline in the 2Y and 10Y US Treasury yields yesterday ahead of the FOMC meeting today. There is no trading in Treasuries in Asia this morning as it is a market holiday in Japan.

FX: JPY was the biggest loser yesterday after the BOJ hiked for the first time in 17 years. USD/JPY rallied to around 151 – the highest level since last November. EUR/USD held steady below 1.09 as the market awaits the outcome of the FOMC meeting tonight.

Danske Bank
Danske Bank
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