Focus on US CPI

Market movers today

The highlight of today will be US CPI for March. We look for 0.4% m/m on the core CPI, in line with consensus. It is a decline from 0.5% m/m in February but still too high for the Fed with respect to reaching the 2% target. Hence, we believe it would seal another hike on 3 May barring any new bad news on the banking front.

Bank of Canada is widely expected to keep rates unchanged at todays' meeting at 4.5%.

Tonight at 20.00 CET we get the FOMC minutes from the 22 March meeting. It will be interesting to read their discussion of the banking issues. However, since then the banking stress has calmed down but we still need to see the effect of any tightening of lending standards, not least towards commercial real estate.

The 60 second overview

Fed-speak: FOMC participants reiterated focus on getting inflation down ahead of the key CPI data today. NY Fed's Williams noted that 'one more rate hike is a reasonable starting place', while Harker called for getting 'rates above 5%' and staying there, in line with our view. Kashkari also said that a recession is possible, yet it is better than allowing inflation to prolong. On the more dovish side, Chicago Fed's Goolsbee emphasized caution regarding the banking sector uncertainty, and said the right monetary policy stance calls for 'prudence and patience'.

Market outlook: As we see both ECB and the Fed remaining on a tightening bias, one of our long-standing market views has been that stronger USD remains a prerequisite for a return to low inflation. In FX Strategy - Throwback monetary analysis to lose its appeal again, 11 April, we highlight that as the rise and fall of the excess money supply ends over the coming months, we expect the focus to increasingly shift back to actual inflation and inflation expectations.

IMF: The International Monetary Fund released the updated World Economic Outlook yesterday, downgrading the global growth outlook by 0.1 percentage point for both 2023 (2.8%) and 2024 (3.0%).

Equities: No news is good news, as the lower vol in bonds is just good enough to lift equities. Thereby, cheerful markets in Europe and Nordics. Meanwhile, the US session struggled a bit for direction but with the same rotation taking place: Into cyclicals - and especially value cyclicals - and out of defensives and tech. Banks outperformed tech by 2p.p. Futures are a tad higher today.

FI: Yesterday, European government bond yields caught with the rise in US Treasury yields from Friday. Hence, the negative sentiment in the European bond market was a reflection of the rise Treasury yields on Friday. However, the 10Y BTPS-Bund spread has been remarkably more stable in a fairly tight range from 170bp to 200bp.

FX: FX markets are relatively quiet this morning, ahead of today's important US inflation numbers, yet with a pinch of risk on. USD/JPY continues testing the topside, now just below 134; EUR/USD still above 1.09, now at 1.0925; EUR/SEK down below 11.40, though ever so slightly; and EUR/NOK off yesterday's highs, now at 11.52.

Credit: With equities in green CDS indices were somewhat tighter yesterday as iTraxx Main closed the day 4bp tighter at 85bp and Xover 14bp tighter at 445bp. Supply was limited though the primary market saw one EUR covered bond being printed and a further five being mandated, while the corporate sphere saw euro deals mandated by Australian telecom Telstra and Sydney Airport.

Nordic macro

Norway: We expect the Norwegian mainland GDP fell 0.2% m/m in February, on weaker consumption and headwinds to both manufacturing and construction.