In focus today
The euro area consumer confidence data for February is released today and will shed light on the mood among households that are expected to drive growth this year. Consumer confidence remains low despite sound balance sheets and real income gains.
Overnight in Japan, we receive inflationary data for January and flash PMIs for February. CPI is expected to fall to 1.5% y/y in January (Dec: 2.1% y/y) and CPI ex. fresh food is expected to fall to 2.0% y/y in January (Dec: 2.4% y/y). January’s PMI composite in Japan showed activity rising at the fastest pace in over a year, making February’s flash figures key to assessing whether the economy can sustain its positive momentum.
Economic and market news
What happened overnight
In China, the IMF has urged China to reduce industrial subsidies, currently 4% of GDP, by 2 percentage points in a warning that China’s export-heavy growth model is distorting global trade. IMF emphasised the need for China to shift towards a consumption-led growth model to address weak domestic demand and reduce reliance on manufacturing exports.
What happened yesterday
In the UK, January CPI data came in close to expectations, but if anything, slightly to the hawkish side. Headline inflation was 3.0% y/y (cons: 3.0%, prior: 3.4%), core at 3.1% y/y (cons: 3.0%, prior: 3.2%) and services at 4.4% y/y (cons: 4.3%, prior: 4.5%). A soft print today would have probably locked in a March cut from the Bank of England, but with another round of prints ahead of the next meeting, nothing is certain at this stage.
In the US, the minutes of FOMC’s January meeting were released after the Fed held rates steady at 3.50%-3.75% at its January meeting. The minutes revealed that policymakers generally expect inflation to continue easing towards the 2% target. However, the minutes had a hawkish twist as ‘several participants’ suggested that the bank may need to raise interest rates if inflation stays above the target. The ‘several’ participants would have preferred a statement that raised the possibility of a hike ‘if inflation remains at above-target levels’. The Fed’s next meeting is in March where we expect the policy rate to remain unchanged followed by cuts in June and September.
Also in the US, December housing permits were 1.448mn (cons: 1.400mn). US residential construction outlook improved slightly at the end of last year, but the recovery is still in its very early stages. High long-end mortgage rates are still weighing on housing market activity, and demand for new mortgages has declined again in early 2026. Residential construction is not expected to be a major growth driver in 2026, and housing prices will continue to put downward pressure on CPI inflation at least for the next year.
Equities rebounded on Wednesday, led by tech stocks (including software). It was a classic rotation session, with investors moving back into growth cyclicals (tech, consumer discretionary) while taking profits in defensives that have rallied over the past month (utilities, real estate and staples down 1-2%). On an index level, S&P 500 rose 0.6% and the Stoxx 600 by 1.2%. Futures, however, are little changed this morning.
FI and FX: Risk-on sentiment dominated markets yesterday with yields rising, equities performing and oil climbing higher. 2Y US Treasury yields rose around 3bp and 10Y up 2bp. EUR/USD slipped below 1.18 as the broad USD extended its strength this week. While part of the rebound appears driven by crowded positioning being unwound, we still see limited scope for a sustained USD recovery. EUR/GBP moved slightly lower during yesterday’s session as inflation figures for January surprised slightly to the topside. Beside GBP, the SEK is month’s underperformer within G10 even though EUR/SEK and USD/SEK slipped back from the 10.67 and 9.03 highs from earlier in the week. The setbacks were attributable to the positive turn in risk sentiment bolstering the krona rather than any macro noise or domestic news. This was also the driver behind the rebound in NOK which was not least aided by energy having a strong session.
