German unemployment might decline as economy gains momentum

Market movers today

• Market focus continues to be on Greece and US earnings reports that have weighed a bit on risk appetite in the past days.

• On the data front, German inflation is expected to drop 1.0% m/m in January leading to a decline in the annual inflation rate into negative territory at -0.2% y/y (from 0.1% in December). It is mainly energy prices pulling inflation lower. The data for the individual Länder start to tick in at 09:00 CET, while the overall German number will be release at 14:00 CET. German unemployment is expected to decline further in January as the economy is gaining momentum.

• We expect Euro M3 growth for December to beat expectations at 4.0% y/y (consensus 3.5%) increasing from 3.1% in November. We also look for credit growth to improve further as credit standards are being eased and demand has picked up. We also get Euro confidence numbers from the EU Commission, which are expected to rise slightly in line with what has been seen in some regional surveys.

• In the US, jobless claims should decline slightly to 300k from 307k. Claims have edged higher lately in a sign that growth has eased a bit from the strong levels in the past quarters. US also releases pending home sales, which have been a bit soft lately.

• In Denmark, business confidence figures for January are due for release and in Sweden the SBC publishes data on retail sales. NIER business and consumer confidence are also due. For more on Scandi markets see page 2.

Selected market news

The FOMC statement released last night had small tweaks to the language but the most important sentence - that the FOMC can be patient in beginning to normalize the stance of monetary policy - was repeated. This in effect means that rate hikes are off the table at the March and April meetings. One notable change in the statement is that international developments are now mentioned directly as a part of what the FOMC watches in determining how long to maintain the Fed funds rate at the current level. Moreover, the statement acknowledges the downward trend in inflation but repeats that the FOMC expects inflation to rise gradually toward 2%, but adds, over the medium term. Finally, the description of the job market was upped suggesting that the Fed could hike rates despite low and declining inflation, if it is convinced that inflation will pick up later and the labour market will continue to improve. We still expect the Fed to raise interest rates in June, see FOMC meeting: more patience, 28 January 2015, for details.

As expected, the Reserve Bank of New Zealand (RBNZ) maintained the cash rate at 3.5% at yesterday’s monetary policy meeting. More noteworthy, RBNZ left out the explicit hawkish bias in the immediate statement and instead stated that it ‘expects to keep the OCR on hold for some time’ and that future rate decisions - no matter the direction - will depend on economic data. We expect RBNZ to leave the cash rate unchanged in the coming year and expect the first hike in Q1 16.