In focus today
From the US, the NFIB’s January Small Business Optimism index is due for release. Business sentiment improved significantly in November and December after the election uncertainty eased. The Fed’s Hammack and Williams will also give speeches today.
In the euro area, focus turns to industrial production data for December, which is expected to show a small increase of 0.4% m/m by consensus. However, the decline will likely be larger than 0.4% m/m as German industrial production declined 2.4% m/m in a sign of a still weak industrial sector.
In Norway, the growth picture has been relatively mixed in Q4. Based on an overall review, we believe that mainland GDP rose 0.1% q/q in Q4, well below Norges Bank’s estimate of 0.3% from the December MPR. This is supported by employment which appears to have fallen slightly in Q4, signalling that GDP growth has been moderate unless productivity growth has picked up significantly.
Economic and market news
What happened yesterday
In the US, President Donald Trump signed the executive order increasing tariffs on steel and aluminium imports to the US by 25%. The tariffs are expected to take effect on 4 March according to a person familiar with the plan. This is likely to heighten the risk of trade tensions and provoke retaliatory measures from global trade partners.
In the euro area, the Sentix indicator for February was stronger than expected rising to -12.7 (cons: -16.3), indicating that investors are less pessimistic. That said, the indicator remains low in a historical context.
In Norway, the inflation report for January surprised slightly to the upside, with core inflation at 2.8% y/y (cons: 2.6%) – and at the same time exceeding Norges Bank’s estimate of 2.6% y/y from the December MPR. Decomposing the print, the upside surprise stemmed entirely from imported inflation, which can be explained partly by a smaller ‘January sales’-effect than last year. However, as the NOK has stabilised, the risk of a continued rise in imported inflation seems limited. On the positive side, domestic inflation and overall service inflation fell on a yearly basis. Overall, the release clearly reveals that the disinflationary trend is intact, which should lend support to the case of a rate cut in March.
In Sweden, the final pieces of data, December production and consumption, forging the Q4 outcome was released. Coupling this with the already published data, these suggests that we could see a decent Q4 GDP print when national account GDP is released by end of this month. Except for employment all other indicators suggest stronger q/q growth than suggested by the GDP indicator – which points to a meagre 0.2% q/q.
In Denmark, January CPI fell to 1.5% from 1.9%, mainly attributed to electricity prices, where large price increases last January mean prices have now actually fallen compared to last year. The price of natural gas also contributed to the decrease. January inflation is notoriously uncertain, both because of new price weightings, certain prices that are only updated once a year, and uncertainty about the size of January sales. Inflation is well under control at home, which is good news for people in Denmark. Not only does it mean increased purchasing power, but it also strengthens the outlook for lower interest rates as inflation has also come down in the euro zone. We expect the ECB to continue lowering rates until after the summer holidays and expect Nationalbanken to mirror the ECB’s decisions going forward.
In the Middle East, Hamas announced that it will stop releasing the Israeli hostages on the coming Saturday as agreed upon “until further notice” amid accusing Israel for not sticking to the ceasefire agreement. Retaliatory, Israel described this as a “complete violation of the ceasefire” and has instructed the Israeli military to prepare for “any possible scenario” in Gaza.
Equities: Equities kicked off the week on a strong note (MSCI World 0.5%). Broad based increases were equally driven by US and Europe, which is interesting considering the tariff announcement. Few investors would probably have imagined Stoxx 600 setting a new all-time high the same day. However, investors seem to have adapted to Trump-era volatility and some were probably already expecting this. Energy led the increases in Europe while steel and AI-related stocks rose in the US. Financials were the weak spot in all regions, as investors probably took home some profit with financials being one of the top performing sectors this year (6% YTD globally two months into the new year). US futures are edging somewhat lower this morning though, along with Asian markets.
FI: We saw modest movements in global bond yields yesterday as bond yields declined 1-2bp across the German and US government bond yield curves. There was a very modest bullish steepening of just 1-2bp on the German and US curves. The German ASW-spreads continue to tighten apart from the Schatz-spread. This is driven by the combination of supply, QT and political uncertainty ahead of the German election. However, the US ASW-spread is widening on the back of expectations for less bank regulation and no change in the supply between bonds and bills.
FX: EUR/USD is holding steady around 1.03 as today’s calendar probably lacks any major macro market mover. Scandies continue to have a strong run, with EUR/SEK currently challenging the 6M low just shy of 11.25. The yen remains supported with USD/JPY consolidating at 152.
