Market movers today
The key event in the Scandi markets will be the Norges Bank (NB) meeting today. Although we do not expect any changes to the key rate, we expect the interest rate path to be revised up a little this year, and slightly more in 2019 and 2020 (for more see next page).
We also get Danish housing market statistics for Q4 17 and Prospera inflation expectations in Sweden.
The Swiss National Bank (SNB) holds its quarterly policy meeting; we expect unchanged rates and few new policy messages, see next page.
Globally, we have a quiet day in terms of the calendar , with few global market movers released. Instead markets will likely continue to watch for political developments in the US and Italy.
Selected market news
It has been a relatively quiet session with equities mixed in the US and Asia alike and minor drops in US Treasury yields . Weighing on sentiment are mounting UK-Russian tensions as UK Prime Minister May expelled a number of Russian diplomats and suggested a freeze of Russian state assets after Russia’s alleged poisoning attack on British soil.
Disappointing retail sales out of the US had a clear dampening effect on sentiment yesterday, signalling a weak start for private consumption in Q1 despite very high optimism on the back of the tax reform. That said, we still believe private consumption will remain a key US growth driver this year, as employment continues to rise, real wage growth is stable and confidence is set to remain high.
USD crosses were little moved by comments from US President Trump’s new economic advisor, Larry Kudlow , that one should ‘buy King dollar and sell gold’. Kudlow is a former investment bank economist and best known for his CNBC appearances – one in which he yesterday confirmed that he is a hardliner on trade and protectionism and offered the above-mentioned ‘trading recommendation’. He went further to comment on monetary policy, saying the Fed should not ‘overdo’ it in terms of raising interest rates. While the US now has a top economic advisor advocating that a ‘great country needs a strong currency’ and that ‘stability is key’, speculation that the US Treasury could abandon its ‘strong dollar’ policy may fade. However, in our view that does not change the fact that the fiscal policies being pursued are USD-negative via the deteriorating effects on the US ‘twin deficits’.
A range of Japanese carmakers announced decent wage increases for workers overnight as the reporting season kicked off with notably Toyota saying that averages salaries would rise by 3.3% this year. While better than feared, this will likely still fall short of exerting any pronounced upward pressure on inflation because base wages (ex bonuses and benefits) are set to rise by less. Thus it may still fall short of Abe’s call for a 3.0% or more increase and USD/JPY fell back below 106 on the news and extended the decline due to lingering trade war concerns.
