Inflation day
|Market movers today
Today is the big inflation day. Common for the January releases published today will be that new 2021 weights will distort the inflation measure.
We get final HICP figures out of Germany which will shed some light on the drivers of the spike in euro area inflation we saw last week. We get CPI figures from Norway and Denmark as well, see more below. Finally, US CPI inflation is released in the afternoon.
The Riksbank meets today. We expect an unchanged rate path and we will look for the distribution for QE across assets moving into Q2, see more below.
The 60 second overview
US fiscal policy: As part of a USD 1.9 trillion coronavirus relief bill, President Biden agreed with a proposal by Democratic lawmakers that limits or phases out stimulus payments to Americans earning more than USD 75,000. The bill still faces opposition with Republicans who prefer a smaller package, but Democrats last week approved a budget outline that will allow them to push the package through in the coming weeks without Republican support.
Equities: Very quiet session in equities yesterday so more interestingly, futures are higher again this morning rising roughly 0.5% across indices in Europe and US.
Asian indices also mostly higher ahead of the Lunar New Year holidays starting tomorrow. For a change, defensives made a small outperformance vs. cyclicals while small cap continued to outperform large cap. In US Dow -0.03%, S&P 500 -0.11%, Nasdaq +0.1% and Russell 2000 +0.4%.
FI: Yesterday's trading session did not provide new info that changed market sentiment. Most jurisdiction ended within 0.5bp from Monday's close after trading in a very tight range amid the bond sale from Germany (linker), Netherlands and Spain (50y) were well received.
FX: In yet another fairly uneventful session in FX markets, the broad USD yesterday traded on the back foot with EUR/USD moving back above 1.21. Scandies, JPY and GBP were little changed vs the EUR.
Credit: In line with European equities, sentiment has come somewhat down in credit markets following a week of rapid tightening. iTraxx Xover ended yesterday in 247bp (+2bp) and Main in 48bp (+½bp). HY cash bonds widened 3bp and IG around ½bp.
Nordic macro and markets
The Riksbank's policy announcement is at 09:30. Macro data have on balance performed somewhat better than expected. For instance unemployment, though high, does not appear to reach just as high as foreseen in the latest Riksbank forecast. At the same time, tougher restrictions introduced late last year might dampen the recovery at the beginning of this year until a sufficient share of the population has got the vaccine and restrictions can be eased. So the need for ample monetary stimulus remains in place. The repo rate path is likely to be kept at zero throughout the forecast period. At the same time the Riksbank should specify the distribution for QE across assets moving into Q2. QE-volumes were temporarily increased to a total of SEK 120bn in Q1. At the same time the Riksbank indicated a grand total of some SEK 80bn in Q2 without specifying volumes for the different assets.
In Norway, there is always a big question mark over inflation in January, with the impact of the New Year sales varying considerably and making the seasonal effect unclear. This year, though, the uncertainty is particularly strong. For one thing, prices rose unexpectedly in January last year, and this base effect would pull the annual rate of core inflation down. On top of this, Statistics Norway have adjusted the weights in the CPI to capture the big shift in consumption patterns brought on by the coronavirus pandemic, and we estimate that this will pull core inflation down around 0.3pp in January. All in all, we expect core inflation to slow from 3.0% y/y in December to 2.2% y/y in January. It is important to note that Norges Bank will of course partly have taken account of the above effects in its projections (2.5 % y/y). While the size of this effect is unusually uncertain, presumably the bank will largely have been able to see through it. Also note that headline inflation could rise substantially due to higher electricity prices, from 1.4 % y/y in December to close to 2.5 % y/y in January.
We expect Danish January CPI inflation to be unchanged at 0.5% y/y. Tobacco prices have fully adjusted to the April tax increase and alone contributes by 0.6 percentage points. Increasing fuel prices contribute as well. The PSO tariff will be phased out this year and has been cut to a minimum in January which on the other hand weighs down.
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