In focus today
In the US, April industrial production data is due for release.
In the euro area, industrial production data for March and employment growth for Q1 are scheduled for release. The current strong labour market gives upside risks to wage growth and thereby domestic inflation.
In Denmark, the government will publish an update on the budget for 2024. For more detail, please see our Fixed income morning comment.
In Sweden, the monthly Prospera survey is published at 08.00 CET. Inflation expectations are at 2.0% on all horizons. Vice governor Martin Flodén is scheduled for his last speech as he steps down on 21 May, after eleven years in the Board.
In Norway, GDP for Q1 is released. There has been a clear pick-up in Norwegian growth in Q1, as the manufacturing sector is lifted by higher demand from abroad as well as the oil sector. We expect mainland-GDP grew 0.3 % q/q in Q1 with risk fairly balanced from seasonality around Easter. Also, Norges Bank will publish the Expectations Survey for Q2, where we expect inflation expectations to be moving lower but wage expectations to remain elevated.
Overnight, China will release the monthly batch of data for retail sales, home sales, home prices, industrial production etc. Focus is still on retail sales and home sales as proxies for how the housing crisis and the domestic economy is doing.
Economic and market news
What happened overnight
In Japan, national accounts for Q1 were released, showing GDP declining faster than expected at -0.5% q/q (cons: -0.4%). Private consumption, which accounts for more than half of Japan’s GDP, fell by 0.7% q/q (cons: -0.2%) as consumers reduced spending amid a weaker yen driving up food and energy costs. This marks the fourth consecutive quarter of decline in private consumption. Additionally, capital spending decreased by 0.8% q/q (cons: -0.7%), while external demand was -0.3% q/q, in line with expectations.
What happened yesterday
In the US, April inflation was slightly lower than expected on headline level at 0.3% m/m SA (cons: 0.4), while core inflation was close to expectations, printing 0.29% m/m SA (cons: 0.3%). Modest core goods deflation continued, while shelter and health care prices saw moderating inflation pressures – for more detail please see Global Inflation Watch – April US CPI signals cautious relief for the Fed, 15 May.
US retail sales came in markedly lower than expected at 0.0% m/m SA (cons: 0.4%), while the control group sales (measure which strips out the most volatile components) declined some 0.3% m/m SA (cons: 0.1%). The seemingly large downtick can mainly be attributed to a less favourable seasonal adjustment factor, although the downside miss also gives hints about some underlying weakness as well. Overall, this supports our case that the Fed will still cut rates this year, where we call for the first cut in September.
In Europe, Slovak Prime Minister Robert Fico was shot multiple times in an assignation attempt. According to Slovak government officials, he is no longer in life-threatening condition.
In Sweden, April CPIF and core inflation (CPIF excluding energy) stood at 2.3% and 2.9%, respectively, 0.4 percentage points below the Riksbanks’s forecasts – positive news for the Riksbank. Consequently, as previously expressed by the Riksbank, further rate cuts are anticipated this year. Decomposing the print reveals that rent price increases were lower than expected, which is puzzling given the recent discussion about the dramatic upcoming increases in rents and condominium association fees. Additionally, the volatile components of electricity prices, charter and plane tickets dragged the figure down, while hotel and restaurant prices rose slightly.
On the commodity scene, the International Energy Agency (IEA) pared its 2024 oil demand growth forecast, projecting that global demand will increase by 1.1m bpd this year, down 140k bpd from its previous forecast. The IEA attributed the lower forecast to weak industrial activity and a mild winter, which reduced gasoil consumption, particularly in Europe, where the declining share of diesel cars had already been affecting consumption. This downward revision contrasts with the forecast presented by OPEC on Tuesday, widening the divergence between the two projections compared to earlier this year. Brent crude oil concluded yesterday’s session somewhat higher at USD82.75/bbl.
Market movements
Equities: Global equities rallied following a softer than expected CPI print. However, the sum of macro data was much more favourable for bonds as we observed some softening signs elsewhere, which equity investors basically ignored yesterday. This was in line with our expectations, and inflation figures will continue to dominate financial markets in the coming period. Note the significant number of new all-time high in equity indices reached yesterday, including those of the S&P500 and Nasdaq. This mention is noteworthy because of the bearish investors who, a month ago, were warning of an overdue correction. One month later, most major equity indices are 5-10% higher, and no one really discussed the risk of missing out on a rally… US indices yesterday, Dow +0.9%, S&P 500 +1.2%, Nasdaq +1.4% and Russell 2000 +1.1%.
FI: The soft bag of US data released yesterday provided significant tailwinds to FI Markets throughout the session as G7 curves bull-flattened and markets added to rate cut expectations for 2024. 10Y UST/Bund yields dropped 12bp to 4.31% and 2.42% respectively. Hence, long-end EUR and USD rates are now back at our 12M targets after trading substantially above for most of the past month. And with US macro obviously losing steam, risks seem tilted towards a prolongation of the current momentum. German ASW spreads ticked marginally up throughout the session, while credit spreads were close to unchanged.
FX: In yesterday’s session, EUR/USD rose to the upper end of the 1.08-1.09 range, driven by a slightly lower-than-expected US April CPI and significantly softer US April retail sales. This generally resulted in lower global yields and a broadly weaker USD, which helped USD/JPY decline toward 154. The decline in global yields provided some tailwind to risk sentiment, benefiting the Scandies, with both EUR/NOK and EUR/SEK declining toward 11.60. EUR/DKK has risen this week and has reached the April peak again around 7.4615-20.
