Danske Research Team
Danske Bank A/S
Market movers today
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Today brings US GDP figures for Q1. The Fed Atlanta GDP nowcast shows growth in Q1 of 0.5% q/q AR, softdata indicates growth in the region of 1.5-2.0%. We expect to land somewhere in between and forecast GDP growth of 1.0% q/q AR in Q1.
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We will also get PCE core inflation for Q1. If the current trend in monthly PCE core increases continues (implying increases of around 0.1% m/m), PCE core inflation would come in at 2.2% q/q AR. However, note that although this may give the impression that inflation has reached its target, the Fed is more concerned about PCE core inflation y/y, which w ll be significantly below 2% almost no matter what the March print comes in at.
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Today, the euro area flash inflation figure is due for release. Following the decline in headline inflation to 1.5% y/y in March, we look for an increase to 1 .8% y/y in April (revised from 1.7% after higher German and Spanish data yesterday). In line with the fall in March, this is due mainly to the early timing of Easter in 2016, which is causing volatility in prices of package holidays. This is also reflected in core inflation, which we estimate will increase to 1.0% y/y in April from 0.7% y/y in March. Looking beyond the Easter volatility, we expect headline inflation to decrease below 1.5% y/y, as the support from the oil price fades, while core inflation should also be back around 0.8-0.9% y/y.
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ECB's Survey of Professional Forecasters is also due for release. The longer term (fiveyear) inflation expectations in the survey have been stable at 1.8% over the past year.
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In Scandinavia it is t ime for labour data in Norway and retail sales in Norway and Sweden.
Selected market news
The ECB kept policy rates, the QE programme and its forward guidance unchanged at yesterday's meeting: Importantly, the ECB still expects policy rates ‘to remain at present or lower levels for an extended period of time. That said, the ECB did sound slightly more optimist icon the euro area growth out look, but still underlined that the underlying inflation pressure remains subdued.
The market took its direction from the inflation comments and European bond markets rallied. Also the comment from Draghi that it was not up to the ECB, but the national central banks to ease the tensions in the repo-market supported especially the short -end of the German curve. The EUR suffered slightly on he ‘dovish' interpretation.
The Swedish Riksbank was also seen as ‘dovish' yesterday as the QE programme was extended for yet another six months and as the rate path was flattened. Note though that the decision to extend the QE programme was a tie and was only carried out as Governor was in favour. We have been posit ive on Swedish bonds for quite a while and the extension of the QE purchases supported this view. The Swedish krona on the other hand suffered on the QE extension.
The US equity market ended marginally higher as the market tried to digest a whole bunch of policy news ranging from the Trump tax plan, to the mixed signals regarding the future for the Naftatrade agreement and the looming government shut -down. But in factlittle news came during the day to guide the markets.
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