In focus today
From the US, the most important data release of the day will be the January CPI. We forecast headline inflation at +0.3% m/m (SA) and 2.9% y/y and core inflation at +0.2% m/m (SA) and 3.1% y/y. Starting from 16:00 CET, Fed Chair Powell will continue his semi-annual testimony, this time to the House Financial Services Committee at Congress. It will likely be a repeat of his testimony in the Senate Committee of Banking, so we do not expect any new messages from him.
In Sweden, Riksbank Vice Governor Bunge speaks at 10.00 local time about the economy and current monetary policies at a seminar in London hosted by JP Morgan. She will have a good opportunity here to comment on the upside January inflation surprise.
Economic and market news
What happened yesterday
In Norway, Q4 mainland GDP growth landed at -0.4% q/q, undershooting both Norges Bank’s projection of 0.3% q/q, market consensus of 0.3% q/q and our projection of 0.1% q/q. In short, the negative growth is a clear indication that monetary policy is working with rate-sensitive parts of the economy hurting. Growth in employment of 0.2% q/q, better than what headline figures would suggest, remains a slight bright spot. We still pencil in four 25bp rate cuts from Norges Bank in 2025 starting at the monetary policy meeting in March.
In the US, Fed chairman Powell gave his semi-annual testimony in the Senate where he gave a balanced assessment and underlined that the Fed does not need to be in a hurry to adjust policy providing a small lift to bond yields.
Cleveland Fed president Hammack (hawk and non-voter) emphasized that the Fed should keep the funds rate steady for some time amid current economic conditions and higher policy uncertainty. New York Fed president Williams (hawk and voter) was also on the wire, stating that monetary policy is well positioned to achieving maximum employment and price stability.
US small business confidence took a hit in January after the brief sense of euphoria following the November elections, echoing what we saw in the Michigan survey last Friday. Fewer firms see this as a good time for expanding business, while price and hiring plans declined slightly. No dramatic changes or sense of sharp weakening for now, but perhaps just the reality of Trump’s policies setting in.
Turning to the tariff-saga leaders of Mexico, Canada, and the European Union condemned President Trump’s decision to impose 25% tariffs on all steel and aluminium imports, eliminating all country exceptions and quota deals from 12 March. While leaders from Mexico did not articulate any plans to retaliate, both Canada and the European Commission communicated that there would be firm and proportionate counter-measures. Trump stated on Monday that he would impose reciprocal tariffs on all countries that impose duties on U.S. goods.
In the Middle East, the Israeli Prime Minister Benjamin Netanyahu reiterated that the ceasefire would end, and the Israeli military would resume operations in Gaza, if Hamas does not release the Israeli hostages as planned by noon on Saturday.
Equities: Equities were unchanged at a global level yesterday, while Europe continued its outperformance, hitting a new record close. This takes Stoxx 600 almost 8% higher this year vs 3% in the US, so the outperformance is huge. Wait-and-see mode in equity markets (MSCI World 0%) without clear sector trades. Cyclicals/defensives, growth/value traded on par, while large caps continued to beat small caps. Consumer discretionary and primarily Tesla was a notable decliner though, while staples and energy were the best performing sectors. Futures are indicating another slow start to trading today.
FI: US Treasury yields rose, and the curve steepened on the back of comments from Federal Reserve Chairman Powell that the Federal Reserve is in kind of a “wait-and-see mode” in terms of rate cuts and that the Federal Reserve must stay patient given the strength of the US economy. There was a similar move in the European government bond yields and the curves steepened modestly. The 10Y spread between France and Germany as well as the 10Y spread between Italy and Germany has widened modestly in recent days.
FX: EUR/USD edged gradually higher throughout yesterday’s session, further fueled by reports that Zelensky is willing to swap territory with Russia to secure a peace deal. The SEK had yet another strong session, with EUR/SEK temporarily reaching 11.22 before trading back above 11.25 once again. The NOK instead faced headwinds on the back of weak domestic growth data, resulting in NOK/SEK briefly visiting levels below 0.97. The Zloty continues to build on recent weeks’ strong performance, with EUR/PLN making new lows almost daily, currently at 4.17.
 and 2.9% y/y and core inflation at +0.2% m/m (SA) and 3.1% y/y. Starting from 16:00 CET, Fed Chair Powell will continue his semi-annual testimony, this time to the House Financial Services Committee at Congress. It will likely be a repeat of his testimony in the Senate Committee of Banking, so we do not expect any new messages from him.){kind=link}