In focus today
The most important release today is the US February jobs report. Early high frequency indicators, like jobless claims, ADP’s weekly private sector employment estimate and Indeed Hiring Lab’s daily online job postings have generally signalled improving labour market conditions into February. We still expect a modest slowdown in NFP growth to +70k from 130k in January and unemployment rate to remain steady at 4.3%.
In the euro area, the third estimate of Q4 2025 GDP is released including a breakdown of the national accounts and the ECB’s preferred wage growth measure, compensation per employee. The wage data is the most important and we expect it to remain at 4.0% y/y.
In Germany, Sunday’s state election in Baden‑Württemberg will be the first test this year for Friedrich Merz and his grand coalition. Home to around 11 million residents and one of Germany’s most economically important regions, the state has been governed by the Greens since 2011. With the Minister‑President not standing for re‑election, the CDU’s Manuel Hagel leads in recent polls, with the CDU on 28%, the Greens on 25% and AfD on 19%. The result will be a bellwether for voters’ sentiment towards the grand coalition.
Economic and market news
What happened overnight
In India, the US granted a temporary 30-day waiver to purchase sanctioned Russian oil, aiming to alleviate supply disruptions stemming from the Middle East conflict. Treasury Secretary Bessent clarified that the waiver applies only to stranded transactions and thus is not expected to provide significant financial benefit to Moscow.
What happened yesterday
In the Middle East, the conflict ended its sixth day as Iran reportedly attacked Azerbaijan and targeted additional tankers in the Gulf, pushing Brent crude up 5% to 85.4 USD/bbl and European natural gas prices 6% higher to 50.2 EUR/MWh. President Trump claimed he must be involved in appointing Iran’s next leader, dismissing the candidacy of Mojtaba Khamenei, who is expected to continue his father’s policies. This position contrasts with the White House’s statement that regime change is not the primary objective of the military campaign. Despite soaring energy costs, Trump told Reuters he has no plans to tap the Strategic Petroleum Reserve, stating: “If they rise, they rise”.
In the US, weekly jobless claims remained steady at low levels, unchanged at 213k for the week ending 28 February. Continuing claims ticked slightly higher, but not meaningfully so. The February Challenger report showed that even though firms’ hiring announcements remained subdued, layoff announcements declined sharply to 48.3k from January’s 108k SA. This suggests that US firms are still not under pressure to cut labour costs with layoffs.
Flash Q4 productivity growth slowed to 2.8% q/q AR (Q3: 5.2%), reflecting the weaker-than-expected GDP print from earlier. This lifted unit labour cost growth to 2.8% q/q AR (Q3: -1.8%). In the big picture, US labour cost pressures have cooled to modest levels in a historical context.
In the euro area, ECB speakers were on the wires commenting on impact of war in the Middle East. Highlighting both that the inflation expectations are key, duration of the war matters, that risks are on inflation but also could weigh on economic growth. Schnabel is set to speak Friday at 18:00 CET, which could easily provide a firm hawkish push given the recent rise in energy prices.
In Sweden, February flash inflation came in close to forecast. CPIF ex energy (core) came in at 1.38% y/y (forecast: 1.41%), while CPIF (the Riksbank’s target variable) registered at 1.71% y/y (forecast: 1.75%), and CPI at 0.48% y/y, just shy of our projection of 0.52%. Deviations stemmed from lower energy prices and core goods, while food prices exceeded expectations. This marks the first time Statistics Sweden has published preliminary figures at a detailed level, and the monthly development since January is close to our forecast. R
Japan’s largest labour union group, Rengo, is targeting a 5.94% average wage hike this year, slightly below last year’s demand (6.09%) but still robust. Last year the result ended at 5.25%. A strong outcome is crucial to prevent core inflation from falling below target and remains a key condition for further BoJ rate hikes. Initial results from major firm negotiations are expected in the coming weeks.
Equities: Global equities declined modestly yesterday, with the MSCI world down 0.2%. This came despite continued relatively large intraday swings. However, please note that on an aggregate level the moves throughout the week have remained contained.
It is also worth noting the internal market dynamics: both tech and consumer discretionary finished higher yesterday. Looking across the week since the outbreak of the conflict involving Iran,cyclicals have actually outperformed defensives, and the NASDAQ is also higher this week.
This is quite telling of how a large part of the market is interpreting the situation and reflects the starting point going into the escalation. As discussed in earlier morning comments, one of the most interesting observations this week is the number of reversal trades that have been taking place. This morning most Asian equity markets are trading higher, European futures are up and US futures are marginally higher.
FI and FX: There was a dramatic rise in European government bond yields and rates as well as US government bond yields yesterday as oil and gas prices continue to rise given the uncertainty about when the war in the Middle East will end. This morning, there has been some spillover effect to the Asian bond markets with a modest rise in Australian government bond yields etc. US Treasuries have risen only very modestly in Asian trading this morning.
Today, the US labour market report is released and if the report comes out to the strong side it will add to the pressure on bond yields and swap rates. We have seen a rise in both the VIX index and the Move index (equity and rates volatility) as well as credit spreads (such as ITRAX) but there have been modest moves in the Schatz ASW-spread, so we are still not seeing a significant risk-off move as we have seen in the past.
