Danske Research Team
Danske Bank A/S
In focus today
Focus today is on German and Spanish inflation data for April that will give important indications of where the euro area print tomorrow is heading.
China releases PMI manufacturing for April overnight from both NBS as well as Caixin. Both indices have increased to decent levels in recent months, but we believe the odds are skewed towards a small correction lower as PMI manufacturing declined in both US and the euro area in April. It would also fit with our muddling through scenario of moderate growth but neither a boost nor bust.
In Sweden, GDP statistics for Q1 2024 are published at 08.00. We anticipate a strong start to the year as the GDP indicator in January and February showed m/m increases of 1.1% and 0.1%, respectively. Despite unemployment rising in March, working hours greatly increased. This should both contribute to the aggregate GDP number as well as make up for the decreasing employment. The last growth indicator for Q1 GDP is the March retail sales figure, which is released simultaneously as the GDP figure. For some time now, indicators from both Commerce Sweden and NIER have clearly been hinting at a shift in sentiment amongst business owners in the retail sector. This has also been reflected in retail sales figures, which have steadily increased over the last three months. The March sales figures are thus most probably going to reflect a strong contribution to economic growth.
At 15.50 Riksbank vice governor Martin Flodén speaks.
The rest of the week focus will be especially on the euro area inflation print and Q1 GDP figures (Tuesday), the FOMC rate decision and Treasury Quarterly Refunding Statement (Wednesday), preliminary productivity figures for the US (Thursday), and last, but not least the US jobs report, euro area unemployment figures for March, and Norges Bank rate decision (Friday).
Economic and market news
What happened overnight
In Japan, the yen weakened briefly past 160 against the greenback (USDJPY) as of this morning, thus reaching its lowest level against the dollar since April 1990. The increasingly weak yen has been fuelling speculation in markets that the Bank of Japan may soon intervene to counter any further decline of its currency.
Oil prices began the week slightly lower from Friday's close with Brent trading around 88.7 USD/bbl as of this morning.
What happened over the weekend and on Friday
In the US, March PCE inflation figures came in at 0.3% m/m as widely anticipated by market participants. The price gauge rose 2.8% y/y 0.1 ppts. more than consensus expectations. The subsequent reaction in markets was mostly muted.US equity markets regained what was lost during Thursday's session and then some on the back of strong Q1 reports out from Silicon Valley giants Microsoft and Alphabet.
In Riyadh, Saudi Arabia, president of the World Economic Forum (WEF), Borge Brende, made it clear he saw geopolitically triggered recessions, government debt ratios globally as well as potential trade wars as clear risk factors for global economic growth. Brende spoke at a WEF event. He emphasised the projected 3.2% global economic growth for 2024 was not bad, however it stood below the trend of recent decades of 4%.
Market movements
Equities: Global equities rose on Friday, with the MSCI world index almost 3% higher for the week. Last week's performance, especially on Friday, was driven primarily by strong earnings, with macro factors playing a secondary role. Global tech led the outperformance, rising by 5% last week, thus offsetting some of the underperformance seen in the weeks leading up to big tech reporting. Cyclicals broadly outperformed defensives last week, and the VIX dropped from 17 to 15. In the US on Friday, the Dow rose by 0.4%, the S&P 500 by 1.0%, the Nasdaq by 2.0%, and the Russell 2000 by 1.1%. Asian markets are higher this morning, with Japanese stock markets closed for a holiday. European and US futures are also higher.
FI: 10Y US Treasury declined modestly on Friday, but April was still a bad month for the Treasury market as 10Y US yields rose some 25bp, while 10Y German yields rose some 17bp during April. Given the expected supply of Treasuries as well as EGBs there still needs to be a premium for the investor even though at 5% then 2Y Treasuries looks very attractive.
FX: USD/JPY jumped above 158 on Friday as the USD was buoyed by rising US yields and the JPY lack policy support. EUR/USD holds steady around the 1.07 mark ahead of the FOMC meeting on Wednesday. SEK had a rough week last week with EUR/SEK rising above the 11.70 level.
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