Euro industrial production is expected to decline in March

Market movers today

• Euro industrial production is expected to decline in March in line with the movement across countries. The lower production is partly due to fewer working days in March.

• We expect an increase in French inflation to 0.9% in April mainly as a result of the timing of Easter. The final German and Spanish figures should remain unchanged from the flash estimate.

• In the UK Bank of England May inflation report is released. Focus will be on the updated assessment of the amount of slack in the UK economy, as it represents a crucial part of the updated forward-guidance framework. Given the recent strength in UK data, we expect the tone to be a bit more upbeat and thereby less slack to be projected in the economy. UK unemployment data are also released and we expect a decline in the unemployment rate after it showed a large fall in February.

• ECB’s Weidmann and Mersch speak in Berlin. It will be interesting to hear if Weidmann will elaborate on yesterday’s Bundesbank story, cf. below.

• In the Scandi markets focus will be on the new budget proposal in Norway. For more on Scandi markets see page 2.

Selected market news

The People’s Bank of China reached out to the slowing Chinese property market urging lenders to accelerate the granting of mortgages and give priority to first-home buyers. The statement signals the easing bias of PBoC and was well received by the stock market.

The Bundesbank is rumoured to be open to significant stimulus at June’s ECB meeting, including a negative deposit rate, extension of the fixed-rate full allotment to mid-2016, new long-term loans to banks at a fixed rate and an ABS-purchase programme, if the central bank’s 2016 inflation forecast is lowered. The comments triggered an instant market reaction sending EUR/USD close to 1.37. Later it was said that Bundesbank’s support would not be automatic and that nothing was decided.

Swedish inflation moved away from the ‘deflation zone’ in April, when CPI inflation was 0.0% y/y and equal to the Riksbank’s forecast, which was a bit higher than what was expected, while CPIF inflation was 0.5% y/y and only 0.1pp below the Riksbank’s forecast. The increase should only be temporary as inflation will likely drop back again here in May and it therefore does not change our call for a Riksbank rate cut in July.

The recovery in US retail sales remains on track even though it disappointed a bit in April following the strong spring rebound in the previous months, as higher gasoline prices weighed on consumers’ purchasing power. The recovery in US demand is also lending support to the oil price, which rose to highest level since mid-April, above USD109/bbl yesterday, as new data showed a decline in US oil inventories last week.