Market movers today
A busy data week is off to strong start with important inflation releases from Germany and the US. Later this week we get Chinese Caixin PMI, US ISM manufacturing, FOMC meeting, euro area inflation not to forget nonfarm payrolls. We also have the Norges Bank meeting on Thursday but that’s likely to be a non-event, see ‘Selected Market News’ below.
Today, in Germany , the inflation prints will give final guidance ahead of the flash euro area estimate released on Thursday. Friday’s French and Spanish inflation estimates were mixed.
In the US , the key figure today is PCE inflation . Based on the GDP report Friday, it seems like PCE core rose 0.1%m/m in March (assuming no revisions to previous months), which is lower than what most expected previously. This should still be enough to boost the yearly core rate to 1.9% due to the base effects from the drop in wireless telephone service prices last year. Irrespective, we still expect the Fed to move on with the hiking cycle this year.
In the Scandies , focus turns to Norwegian retail sales, credit growth and Norges Bank’s daily NOK purchases . For more information see ‘Scandi Markets’ on page 2.
Selected market news
Asian equities have followed US and European counterparties this morning by trading in green territory. The rise follows a strong weekly finish to the US earnings season, slightly better than expected Chinese PMIs (see next section) as well as improved risk appetite following Kim Jong Un’s pledge to fully denuclearize North Korea during his historical visit to South Korea.
This morning the official Chinese manufacturing PMI showed a drop to 51.4 (from 51.5). We expect the private manufacturing PMI (due Wednesday) to show a similar modest drop as growth in export markets is waning and as slower housing activity feeds through to manufacturing. Noteworthy, this morning’s non-manufacturing index showed a surprising rise.
UK Q1 GDP disappointed Friday by growing only 0.1% q/q – the worst quarterly growth rate since 2012 – casting doubt whether the Bank of England is going to hike next week, as almost all expected just a few weeks ago. We think it is a close call now and think the PMIs for April are going to be extremely important for the Bank of England’s decision.
In Norway , the NAV labour market report revealed another monthly drop in gross unemployment. Meanwhile, at -231 people the decline was smaller than expected and follows a similar March drop that we suspected was temporarily distorted by the timing of Easter. Meanwhile, this report now suggests that the labour market is slacker than we, markets and Norges Bank previously expected, see chart . Possible explanatory factors could be a faster cyclical rise in the participation rate and/or higher productivity growth. That said, recent data releases have more broadly been disappointing. Irrespective of this, Thursday’s Norges Bank meeting is likely to be a non-event as it is a short meeting with no monetary policy report or press conference, and as in recent years Norges Bank has given very little new information at these interim meetings. We stick to our call of a 25bp September rate hike.
On Friday, Russia’s central bank (CBR) kept its key rate unchanged at 7.25%, as geopolitical tension reintroduces climbing inflation risk. However, the CBR sees the target well anchored in 2018-19. We expect the CBR to cut to 6.50% by the end of 2018 and to 6.00% by end-2019.
