The oil price has historically explained around 50%

Market Movers

Euro area flash HICP inflation will be in focus today and we expect it to decline back to deflation territory due mainly to the lower oil price. Despite the increase in the oil price since mid-January this year, it is still much lower than in February 2015, thereby giving a yearly drag from energy to inflation. The oil price has historically explained around 50% of the monthly variation in inflation.

German retail sales for January are released and we expect a moderate monthly increase of 0.3%. This should follow due to the lower oil price and continued progress in the labour market as well as still-high consumer confidence.

Tomorrow morning before markets open in Europe the Chinese Caixin and official PMI manufacturing are due for release and we look for a slight rise in both.

The rest of the week, focus will be on the US ISM figures and the labour market report, where the average hourly earnings are key for the Fed. In the euro area the unemployment rate should have continued lower.

Today in the Scandis, Danish and Swedish Q4 15 GDP figures together with Norwegian retail sales are published, see Scandi Markets.

Selected Market News

The G20 meeting in Shanghai concluded with a demand for more fiscal and less monetary policy stimulus. Without delivering a specific global coordinated stimulus plan, which some investors might have hoped for given the latest market turmoil, the conclusion from the G20 meeting was ‘we will use fiscal policy flexibility to strengthen growth, job creation and confidence’. In terms of monetary policy, the G20 concluded ‘monetary policy alone cannot lead to balanced growth’, which is in line with our view of some central bank fatigue.

The US Monetary Policy Forum on Friday was mainly about Fed communication and most Fed members expressed a view of an expected gradual rate rises. Among the Fed speakers Brainard (voter, dove) said that financial tightening due to cross-border spill-overs may be limiting the extent to which the Fed policy diverges from other central banks. On Friday, core PCE inflation, which the Fed targets, surprised on the upside and increased 0.3% m/m, the highest since February 2012. The monthly increase implied the yearly inflation is at 1.7% - not far from the Fed’s 2% target.

The Irish general election resulted in a dramatic loss for the government. The result does not show a clear winner or an alternative, hence, we are in for a volatile period in Irish politics before the Irish parliament will meet on 10 March (see more on page 2).

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