Market Movers: German inflation to remain unchanged, Italy might see an upside surprise

Market movers today

• This morning, Germany, Spain and Italy release their first estimates for February inflation. We expect the annual inflation rate in both Germany and Spain to be unchanged at -0.5% y/y but Italian inflation to rise to -0.2% y/y from -0.5% y/y.

• There are several potentially interesting Fed speakers today. First, vice-chairman Bill Dudley (dove, voter) and Loretta Mester (hawk, non-voter) are participating at a conference discussing a new report called "new neutral", presented by various US banks in cooperation with several academics. This could give more insight into whether Dudley, who is at the core of the Fed, still believes lift-off in June is plausible. The other vice-chairman, Stanley Fischer (neutral, voter) is participating tonight in a panel discussion on central banks with large balance sheets, a conference in which ECB vice chairman Vitor Constancio also participates.

• On the data front in the US, consumer confidence (Uni. of Michigan) for February is set to be released. There have been opposing forces in February as gasoline prices have increased slightly again, possibly weighing a bit, whereas the labour market is strong currently and stock markets have performed well too, underpinning confidence. We look for a very small rise from 93.6 to 94.1. If anything, there may be a small downside risk, as the Bloomberg weekly sentiment index published yesterday pointed to a decline.

• We expect the first revision of US Q4 GDP data to be downward, from 2.6% q/q AR to 1.8% q/q AR.

• Danish Q4 national accounts and a range of Norwegian and Swedish data are also due.

Selected market news

Economic data overall encouraging. In the US, CPI declined 0.7% m/m in January (cons: -0.6%, prior: -0.4%). More importantly, the ex-food and energy core CPI rose 0.2% m/m (consensus: 0.1%, prior: 0.0%) taking the annual rate to 1.6% and increasing the odds that the Fed will drop the ‘patience’ guidance in March. Separately, durable goods orders climbed 2.8% (cons: 1.6%, prior: -3.4%), though it was driven by the typically volatile aircraft orders component. Meanwhile, the rise in initial jobless claims to 313k (cons: 290k, prior: 283k) suggests that the labour market is cooling a bit. In Europe, money supply data provided further evidence that the credit cycle is turning. Notably, M3 money supply rose to 4.1% y/y (cons: 3.7%, prior: 3.6%) in January, the fastest pace since 2009. Overall, the data support the view that eurozone growth is about to pick up; we expect GDP growth of 1.5% in 2015 (consensus: 1.2%). Data released this morning show Japanese industrial production rising fast at 4.0% m/m in January (cons: 2.8%, prior: 0.8%), while retail sales declined by 1.3% (cons: -0.4%, prior: -0.3%).

US equities lower, benchmark treasury yields higher. Both the Dow Jones and the S&P500 indices declined slightly, as investors seemed to weigh the positive economic data against prospects of a mid-year Fed hike; yesterday, comments from FOMC members Bullard and Mester (June hike ‘viable option’) both seemed to point towards a mid-year hike. This also set the tone for US treasuries, with the 10yr up 6bp.