Light macro data to kick off the week

In focus today

Today is a quiet day on the data front. Market focus will be on the string of Fed/ECB speakers making public remarks.

In Denmark, CPI inflation is released for January. We expect that inflation increased to 1.0% in January from 0.7% in December. Importantly, it should be kept in mind, that the January inflation print is notoriously uncertain with many businesses adjusting prices at new year, and clothing sales affecting inflation significantly.

In the US, the highlight this week is the CPI inflation release tomorrow. The January US CPI print will be key in determining whether the recent upside surprises in US macro translates into higher price pressures. Recently, markets have dampened rate cut expectations for 2024 as most US data points have surprised to the upside.

Economic and market news

What happened overnight?

In the Middle East, Israeli special forces conducted an operation which freed two Israeli hostages in Rafah. Local health officials report that many were wounded, while 37 people were killed.

What happened over the weekend and on Friday? 

In the US, the annual revisions to CPI seasonal adjustment factors painted a mixed picture. December CPI was somewhat lower, while November and October data were revised up slightly. Dallas Fed's Logan (hawk) stated that the Fed still needs to see more benign data prints and is in no rush to initiate rate cuts. The market sentiment was overall positive, with the S&P 500 concluding Friday above the record-breaking 5,000 level.

On the political front, Donald Trump warned NATO that if any allies fail to meet defence spending targets, he will encourage Russia to do "whatever the hell they want". The statement has faced a lot of criticism, with NATO's secretary-general, Jens Stoltenberg, portending that the alliance is ready and able to defend all allies in case of any military threats.

In Europe, Banca d'Italias's Panetta (dove) was on the wire, emphasizing that inflation in the euro area is falling faster than expected and that "the time for a reversal in monetary policy stance is fast approaching". Panetta's statement stands in contrast to ECB governor Schnabel's call for a cautious approach in her interview with FT last week. We expect to see first rate cut in June, though we acknowledge that risks are tilted for an earlier timing.

Finland found their new president on Sunday. Former prime minister, Alex Stubb, has been elected as the next Finnish president, and will take up office on 1 March.

In Norway, January core inflation was in line with consensus at 5.3% y/y, while Norges Bank projected 5.4% y/y. Decomposing the print reveals a significant slowdown in imported inflation, while it increased sharply in January. Disinflation is still in place, albeit marginally slower than anticipated.

Chinese credit growth on Friday showed the strongest monthly reading ever at CNY 6.500bn. Despite month-to-month changes being quite volatile, the overall trend indicates that stimulus indeed is going on and has been stepped up. That said, this also illustrates that the Chinese economy remains highly dependent on stimulus.

Equities: Global equities rose Friday in a US, cyclical and growth led rally with materials underperforming again. This has been the dominating narrative lately and represents investors' view of how sentiment around the world's two biggest economies is diverging. More interestingly, last week we saw both equities and yields firmly higher at the same time and both VIX and MOVE index lower. This underscores how good news is good news and higher for longer is not an issue as longs as it is due to a stronger growth outlook. In the US on Friday; Dow -0.1%, S&P 500 +0.6%, Nasdaq +1.3% and Russell 2000 +1.5%. All major markets in Asia are closed this morning for Lunar New Year holiday. European futures are higher while US futures are marginally lower.

FI: European curves bear flattened again on Friday, thereby continuing to take out some central bank easing expectations. ECB pricing for this year was up 4bp to now stands at 117bp of rate cuts. During the weekend, Bank of Italy's ECB governor Panetta said that the time for policy reversal is fast approaching.

FX: Last week was relatively calm in FX markets with few headlines and macro news to trade on. That said, the cyclically sensitive currencies in the likes of NZD, NOK, SEK and AUD all did (surprisingly) well despite the move higher in global yields. This could reflect recent growth optimism and signs of a stabilisation in the global manufacturing cycle. This is something we will monitor closely in the coming weeks. The CZK was last week's biggest underperformer following dovish signals from the CNB while also the CHF traded poorly with EUR/CHF moving back above the 0.94 level.