Key events ahead: UK retail sales might rebound slightly

Market movers today

• Euro M3 money supply is expected to show a further increase in February to 4.3% from 4.1% in January. Money supply growth has picked up recently and real M1 growth, which is a good leading indicator for GDP growth, now points to more than 2% growth later this year. Credit growth has also recovered lately and we look for a further increase in February.

• UK retail sales are expected to show an increase of 0.4% m/m. Retail sales have been very strong over the past 3-6 months but showed a small decline in January. However, we believe the trend in sales will remain robust driven by strong job gains and the low oil price. We thus look for a slight rebound in sales in February.

• In the US, initial jobless claims are expected to be broadly flat just below 300k. This is still a quite strong level and suggests that the lay-off rate is very low currently adding to the picture of a robust labour market. US Markit PMI service is also released. After falling sharply towards the end of 2014, it has recovered decently in the first two months of the year. We look for a broadly flat reading in March.

• We also have more Fed talk coming up today. James Bullard (non-voter, hawk) will speak this morning and likely reiterate his concern that market expectations of the rate path are different from the path laid out by the FOMC. He fears a sharp rise in volatility if the market gets surprised. Dennis Lockhart (voter, neutral) also speaks and normally being a neutral member he is worth listening to. However, he already stated last Friday that he thinks there is a high likelihood of a lift-off at one of the meetings in June, July or September.

• Unemployment data in Norway. For more on Scandi markets see page 2.

Selected market news

Overnight an airstrike led by Saudi Arabia has been launched against Houthi rebels in Yemen. Alleged Irani support to the (shia) rebels has for a while been a thorn in the side of the (sunni) Saudis and allies, and is the reason for the strike. Oil markets reacted promptly to the outlook for renewed unrest in the Middle East region with Brent crude oil jumping close to USD60/bbl overnight to now trading around the USD58 level. While Yemen itself is not a major oil producer with output of a mere 125 kb/d, the country controls part of the Bab el-Mandeb strait, a key crude shipping route through which some 3.8 mb of oil pass every day. Thus, a geopolitical risk premium is back to be priced in oil despite the otherwise increasingly positive outlook for nuclear negotiations with Iran. Thus expect volatility to stay elevated in oil markets for now.

Treasury yields a few bps higher on the day and equities are lower in the US and Asia alike. Yesterday’s data releases added to the picture of US and euro-zone economic data surprises diverging in favour of the latter with notably weak US durable goods orders contrasting with a strong German Ifo. We think it will take a narrowing in the currently wide gap between surprise indices before EUR/USD sees the next sustained move lower.