Fed, Bank of England and Riksbank policy meetings this week

In focus today

The week starts off with the publication of the Swedish preliminary GDP statistics for Q4 and the full GDP development of 2023. Strong GDP indicators in October and November (+1.0% and 0.2%) promise a relatively strong ending of 2023. We also receive data for Swedish retail sales for December. The sentiment in the retail sector is improving and may support Swedish growth.

The main event this week is the FOMC meeting on Wednesday. We expected the Fed to hold policy rates unchanged at this week's meeting but deliver its first interest rate cut of 25bp at the March meeting. Thursday, both the Bank of England and the Swedish Riksbank announce their rate decision, where we expect both to keep policy rates unchanged.

Economic and market news

What happened overnight

Iran backed militants performed a drone attack against a US military base in northeastern Jordan, the White House announced late Sunday. The attack killed three US servicemen. President Joe Biden said that the US will "hold all those responsible to account at a time and in a manner of our choosing." On the back of this, oil futures rose with brent crude rising as much as 1.5% in the early hours of Monday, hitting 84.80 USD/barrel.

A Hong Kong court has ordered China Evergrande to be wound up. The liquidation order came after the developer was not able to come up with a restructuring plan that would satisfy international creditors.

What happened the weekend

In the US, core PCE index rose 2.9% y/y, down from a 3.2% pace in November just slightly below expectations. Real spending remained very strong with November revised higher. On headline level, all the figures were fairly well in line with expectations, and hence the market reaction was muted. That said, they still underscore how US economy remains solid.

In the euro area, monetary aggregate statistics showed that M3 rose 0.1% in December (from -0.9% in November). Importantly, loans to households were 0.3% (down from 0.5% in November) and to non-financial corporations 0.4% (up from 0% in November). The credit growth numbers coupled with the BLS out last week point to the credit impulse having bottomed. In Germany, consumer confidence declined to -29.7 in February (cons: -24.6, prior: -25.1). The past months, consumer confidence has declined in tandem with the service PMIs from Germany, which means we are likely in for another weak quarter or two in Germany before rising real wages, a strong labour market, and a possible rebound in the manufacturing sector should increase private consumption and service sector growth.

In Norway, retail sales dropped 0.9 % m/m in December, as Christmas shopping was worse than signalled by short-term card data, which could be a seasonal adjustment problem. Note that service consumption is currently slowing, so overall consumption will be weak.

In Israel, prime minister Benjamin Netanyahu said that Israel vows to continue the war on Hamas after the UN's International Court of Justice ordered Israel to take steps to safeguard Palestinians.

In the Red Sea the Houthi rebels on Friday hit a British oil carrier transporting products for Trafigura.

In China, restrictions were made to effectively limit shorts selling. Starting from Monday, investors who buy shares will not be allowed to lend them out for short selling within an agreed lock-up period, the Shenzhen and Shanghai stock exchanges said on Sunday. It is seen as an attempt to try to stop the stock sell-out fuelled by uncertainty over China's economic growth prospects.

Equities: Global equities were higher for the seventh consecutive day on Friday. Once again, the reason was the combination of decent inflation data and strong macroeconomic indicators, with the positive data emerging from the US. However, on Friday, defensives outperformed on the sector side, while Europe continued to outperform within the regions. As mentioned last week, this is the peak of earnings season, and some disappointing guidance from US tech companies was the reason behind the US cyclicals' underperformance on Friday. In the US, Dow rose by 0.2%, S&P 500 dropped by 0.1%, Nasdaq declined by 0.4%, and Russell 2000 increased by 0.1%. Asian markets are mostly higher this morning though with China going against the trend. US and European futures are lower.

FI: Global yields started Friday's session 5bp lower than Thursday's close, however by the end of Friday it was broadly unchanged as the enthusiasm of the UST overnight rally faded. The ECB speak on Friday saw a broad consensus and reflected the ECB's guidance on Thursday. This weekend, Villeroy said that ECB will cut the rates this year at that 'the exact date, not one is excluded, and everything will be open at our next meetings.' This will keep markets zooming in on the April meeting as a live meeting, with 22bp priced (cumulative). We currently still like our call for the first cut in June. Markets are pricing 143bp of rate cuts by year end.

FX: USD was in for a whirlwind of a week, as US macro data came in to the strong side, with EUR/USD ending the week around the 1.0850 mark. Last week saw NOK gain on relative rate differentials with the market perception that NB is set to deliver rate cuts among the last central banks and also deliver fewer rate cuts than peers in the coming years. This week focus turns to European inflation data and further central bank meeting from the Fed, Riksbanken and the Bank of England.