All eyes on US Retail Sales

In focus today

In the US, January retail sales and industrial production data is due for release. Consensus expects some moderation in retail sales growth, even though early credit card data suggests that consumption has remained brisk at the start of the year as well. The NAHB housing market index and initial claims data will also be released today.

In the euro area, the European Commission releases its economic forecasts, including GDP and inflation estimates. As the Commission and the ECB use similar models, the projections could give hints of what to expect from the ECB's staff projections at the March meeting. Additionally, ECB President Lagarde will make public remarks today.

An empty Swedish Macro calendar awaits today. However, two Riksbank speakers Erik Thedéen and Anna Breman are set to speak on two different events. Thedéen will kick things off as his event starts 08.30 CET, followed by Breman at 16.20 CET. Both speeches are themed as "The economic situation and current monetary policy".

Economic and market news

What happened overnight?

In Japan, national accounts for Q4 unexpectedly came in at -0.1% after -0.7% in Q3. The decline stems primarily from weak consumption and capital expenditure. With two consecutive GDP contractions, Japan is now in a technical recession, while Germany has surpassed Japan to become the world's third-largest economy. The print complicates the monetary policy outlook for Bank of Japan, although the policy outlook much depends on the spring wage negotiations.

What happened yesterday?

In Norway, mainland-GDP printed 0.2% q/q in Q4 (Danske: 0.2%, cons: 0.1%). While the print signals some recovery in Q4, we find the details weaker as strong growth in private consumption was partly due to higher electricity consumption. Additionally, mainland exports contributed to the upside, whereas investments acted as a solid drag. Growth seems a bit stronger than Norges Bank (NB) expected in the December MPR (0.0%), but we still believe that capacity utilisation is moving downwards and will allow Norges Bank to cut rates once other central banks start cutting.

In the UK, inflation came in lower than expected in January at 4.0% y/y (cons: 4.1%) and core at 5.1% (cons: 5.2%). Looking at the seasonally adjusted monthly developments CPI was 0.24% m/m and core inflation was just 0.16% m/m s.a. Importantly, service inflation was just 0.03% m/m s.a., which is highlighted as an important component by the BoE.

In the euro area, industrial production surprised to the upside in December, printing 2.6% m/m compared to consensus of -0.2% m/m. However, the uptick is attributed to a large increase in capital goods of 20.5% m/m, driven by a large patent in Ireland (Irish industrial production rose 44.5% y/y). Non-durable goods production saw only a muted increase of 0.2% m/m. The total euro area Q4 industrial production figure was 0.0% q/q in line with GDP. Hence, the industry ended the year on a weak footing but still better than in Q3 in a sign that the worst of the manufacturing slump is behind us. 

Equities: Global equities were higher yesterday as inflation and central bank fear abated. Most visible in the small caps with Russell 2000 rising 2.4% after the massive sell-off following CPI data Tuesday. Add to that most indices ended close to day-high and futures are higher again. Hence, our conclusion yesterday that CPI should not lead to a change in the current dominating narrative seems to also be the conclusion global investors reached yesterday. In US Dow +0.4%, S&P 500 +0.96%, Nasdaq +1.3% and Russell 2000 +2.4%. Asian markets mostly higher this morning led by Japan as dollar-yen crosses 150. European futures are up almost half a percent today while US futures are in marginal gains.         

FI: European yields declined after the lower-than-expected UK inflation data, and the 10Y German government bonds did not cross the 2.4% level. There was also a rebound in the US Treasury market with a decent decline in bond yields across the curve.

FX: Yesterday's price action was characterised as a (part) reversal of the post US CPI price action from Tuesday: cyclically sensitive currencies gained while the USD was among the underperformers. Alongside the SEK the NOK was the biggest outperformer with the Norwegian currency showing remarkable resilience amid Brent Crude falling 2 USD/bbl. Despite the rise in equities the GBP traded on the weak side while USD/JPY remains north of the psychologically important 150-level despite verbal intervention from the Japanese authorities.