In focus today

In the euro area, we expect the ECB to leave the deposit rate unchanged at 2.00% in line with consensus and market pricing. Lagarde is likely to face questions on the recent strengthening of the euro but provide a neutral answer, not highlighting any target level. We expect a muted market reaction as Lagarde refrains from giving new policy signals since the ECB awaits new staff projections in March. For details, see ECB Preview - Stronger euro? No problem, 30 January.

In the UK, the Bank of England is expected to leave the policy rate unchanged at 3.75%. With the January release of the strongest PMI since April 2024 as well as inflation at 3.4%, the decision to maintain the interest rate may be less split than the latest decisions.

In the US, the Bureau of Labor Statistics (BLS) announced yesterday the rescheduled dates for data releases that were delayed by the brief partial government shutdown. Tuesday's December JOLTs report will be released already today at 16:00 CET, and the Department of Labor confirmed that also the weekly jobless claims data will be published today as usual. Friday's Jobs Report will be delayed until next Wednesday and next week's CPI report will be pushed back from Wednesday to Friday. Note that as the shutdown took place after the data collection periods for both the Jobs Report and the CPI, the data quality should not be affected by the delay.

Economic and market news

What happened yesterday

In geopolitics, tensions between the US and Iran continue ahead of nuclear talks on Friday, which are scheduled to be held in Oman. The current discussions are focused on Iran's nuclear programme and come amid a heightened US military presence in the Gulf. On Wednesday, President Trump warned Iran's supreme leader Ayatollah Khamenei about potential military strikes.

In the US and China relations, there was a call between President Trump and President Xi Jinping ahead of multiple meetings this year and an expected summit in China in April. They discussed Chinese armed sales to Taiwan as well as trade and security. In December, the US announced a sales deal with Taiwan including USD 11.1bn in weapons that could be used to defend against possible Chinese attacks. Yesterday at the call, Xi stated that Taiwan would not be separated from China.

In the euro area, HICP inflation declined as expected to 1.7% y/y in January from 2.0% y/y in December. The main reason for lower headline inflation was a sharp decline in energy inflation to -4.1% y/y from -2.1% y/y in December owing to a significant base effect. Core inflation declined more than expected, falling to 2.2% y/y (cons: 2.3% y/y) down from 2.3% y/y in December. Core inflation was lower than expected due to a surprise in services that rose only 0.15% m/m s.a. The downward surprise in services inflation is slightly dovish for the ECB.

Also in the euro area, the final euro area PMI report for January was revised down slightly with the composite index at 51.3 (flash: 51.5) and services at 51.6 (flash: 51.9). The marginal change should not have any significant impact for the ECB's assessment of the economic situation. Focus is likely still on the stronger-than-expected GDP growth in Q4 2025.

In the US, the ADP national employment report showed that US employment increased by +22k private sector jobs in January, a bit below consensus at +48k. Sector-wise, education & health services was the biggest positive driver (+74k), while professional services and manufacturing recorded job losses (-57k and -8k, respectively). This is generally consistent with what we saw last year as well.

Additionally, the ISM report on the US non-manufacturing sector reported PMI at 53.8 in January (cons: 53.5, Dec: 53.8), appearing weaker than its manufacturing counterpart. Business activity growth remains robust, but new orders have slowed and price pressures remain elevated.

In Poland and in line with expectations, the National Bank of Poland maintained its policy rate at 4.00%. The decision is the second consecutive month of the interest rate being maintained, marking an end for now to the easing cycle that has resulted in a 175bp decrease throughout 2025.

In Sweden, the Riksbank minutes were released. They highlighted increasing contrasts within the board despite an unanimous decision in January. Discussions mainly centred on conditions for potential cuts, with limited focus on upside inflation risks, though most board members cite krona appreciation as a downside risk. Overall, the outlook for the Riksbank appears steady.

Also in Sweden, composite PMI for January fell to 54.8 from 56.0 in December, landing below its historical average (55.1). The decline in the composite index was driven by a drop in the services PMI, which decreased from 56.3 to 54.3. All components fell, with the main driver being lower new orders. The services PMI is now also below its historical average of 55.6.

Equities: Global equities ended the day 0.3% lower, in a defensive outperformance. The sell-off was driven by the Mag7 companies, where in fact 71% of the companies in the S&P500 ended the day higher. Mag7 was down 1.8% with the overall index down -0.5%. Nasdaq was 1.5% down while Russell2000 was 0.9% lower. Following a wobbly start to the year for Mag7 (-4% ytd), it is now just 4% higher than the overall index since the start of last year. Tuesday's selloff in software companies extended into Wednesday as well, albeit at a smaller scale. The Mag7 led sell-off also carried into Asia overnight, with equities weaker across the board. In particular the Kospi, which is our preferred way of expressing the AI/tech view, is down 3.5%. US futures are marginally weaker.

FI and FX: Triggered by Riksbank minutes to the dovish side, the SEK sold off yesterday, with EUR/SEK rising 10 figures and breaching 10.60, whilst the RIBA market added a few basis points worth of cuts to the front end. We deem the reaction in the krona as fair, having argued that the SEK rally had and still has gone too far. EUR/NOK made a smaller rebound and closed the US session above 11.40, which as a result pushed NOK/SEK toward 0.93, its highest level in a month amid another push on the oil price. The USD gained vs peers as the EUR/USD slipped to 1.18 and USD/JPY edged toward 157. The UST10y segment held steady while UST2y dropped in a slight bullish steepening.