Focus turns to inflation

In focus today

In the US, January Personal Consumption Expenditures (PCE) data is due for release this afternoon. Consensus foresees Core PCE, which is the Fed's preferred measure for underlying inflation, at 0.4% m/m SA, in line with a similar increase in the CPI released earlier. We will also keep an eye out for real consumption volumes, which remained on a solid footing towards the end of 2023.

Focus today is on inflation numbers from Germany, Spain, and France. The prints are important as they tell us where the euro area print tomorrow will likely land. In the euro area we forecast core inflation at 2.8% y/y down from 3.3% in January, in tomorrow's February print. For headline inflation we expect another decline to 2.4% y/y from 2.8%. If we are right about the print tomorrow, this is another print with easing inflationary momentum and a reading significantly lower than the Q1 2024 estimate from the ECB of 2.9%.

Swedish Q4 GDP is released this morning. We expect it to print 0.5 % q/q SA on the back of strong net exports and manufacturing re-stocking. January retail sales are expected to show a positive print month on month.

Norwegian retail sales is released this morning. We expect retail sales dropped again in January. Private consumption is still suffering from a combination of low real wage growth and higher interest rates, which results in negative growth in real disposable income. In addition, the savings ratio is already close to zero.

Overnight, Chinese PMIs for February will be released, which we expect to be a mixed bag. We see some upside for the NBS manufacturing PMI, which has been weaker than the Caixin version. On the other hand, we look for Caixin PMI manufacturing to correct a bit lower from 50.8 to 50.5 (consensus 50.7).

Economic and market news

What happened overnight

In Japan, BoJ's Takata sent a strong signal for ending the negative interest rate policy. JPY strengthened following the remarks. We continue to expect the first rate hike to come at the April meeting.

What happened yesterday

In the US, the Supreme Court agreed that they would decide Donald Trump's claim of immunity after trying to overturn the 2020 election. Earlier this month the U.S. Court of Appeals for the District of Columbia Circuit rejected Trump's immunity claim, which has now been taken by the Supreme Court. The Supreme Court involved in the matter is seen as a boost to Trump as he tries to delay criminal charges while running for president.

Several Fed members spoke about future monetary policy on yesterday. Fed's Collins said officials will likely lower interest rates later this year as the outlook for sustainable 2% inflation strengthens. Williams noted the US central bank still has "a way to go" in its battle over inflation. He reiterated that the Fed will likely cut interest rates "later this year." Fed's Bostic said he is comfortable taking a patient approach to policy.

Democratic and republican leaders in the U.S. Congress reached a deal for advancing 12 annual bills that could avert a partial government shutdown on Saturday.

In the euro area, ECB's Nagel commented on monetary policy saying that ECB needs to stay on the current course until they have more comforting wage data. He said that it would be fatal for ECB to cut rates too early for inflation to rebound, which would hurt the bank's credibility.

In Sweden, export prices fell 0.6% m/m while import prices fell 1.5% m/m in January. The trade balance soared to SEK 13.3bn. Combining these data means that the real goods trade balance seasonally adjusted lands at SEK 8.5bn. Although this is a very strong print it suggests a slight negative impact on GDP growth going intro Q1.

The NIER confidence indicator changed very little in all business sectors except construction which leaped a bit higher. The most important takeaway from the report is that price expectations fell for both retail trade and service. Manufacturing, construction, and retail trade is now close to normal, with service still lagging.

Crypto. Bitcoin hit USD 60,000 on Wednesday for the first time in more than two years. In February, Bitcoin grew 42%, which was the largest monthly gain since December 2020.

Equities: Global equities were marginally lower again yesterday but again with cyclicals outperforming and industrials being the best performing sector. The higher-for-longer in general supported the NII story in banks while challenging the CRE segment and leading to bigger banks outperforming regional in regions with high bank loans to the CRE segment. In US yesterday, Dow -0.1%, S&P 500 -0.2%, Nasdaq -0.6% and Russell 2000 -0.8%. Asian markets are mixed this morning with Chinese mainland markets outperforming. US and European futures are higher this morning.

FI: The US yield curve steepened from the short end on the back of comments from several Federal Reserve members as well as some US economic data including the GDP growth for Q4. The comments suggest that a rate cut would come no earlier than June, and GDP numbers were a bit to the bullish side. Hence, 2Y US government bond yields declined 5-6bp and 10Y US government bond yields declined 4-5bp.

FX: Price action in the FX space remains within tight ranges. In yesterday's session, the USD broadly strengthened in the G10 space, while Scandies alongside AUD and especially NZD weakened, following the dovish unchanged RBNZ rate decision. EUR/USD traded heavily in the first hours of yesterday's session without any major news—likely due to month-end flows—but remains in the mid 1.08-1.09 range.