Market sigh as Macron secures first round

Market movers today

This morning Norwegian and Danish CPI inflation data are due out. In Denmark, we expect inflation rose further to 5.2% y/y in March from 4.8% in February. In Norway, we expect core inflation rose to 2.3% y/y, which is slightly below what Norges Banks anticipated in its March monetary policy report. For both, see more in the Nordic section.

Also this morning, the British monthly GDP estimate in February is due out. The data is from before the Russian invasion and hence not so important from a market perspective.

We have some FOMC speeches in the afternoon. We expect the policymakers to repeat that the Fed is about to front-load rate hikes.

On Thursday, we expect the ECB to keep the door open for a September rate hike, see ECB Preview: Lagarde to bring September into play - we revise our ECB call, 8 April.    

The 60 second overview

French election: Incumbent President Macron topped the first round of the presidential election and will face far-right Nationally Rally candidate Marine Le Pen in the run-off on 24 April. While Macron's first round lead (28%) over Le Pen (24%) was bigger than he managed in 2017, polls point to a much narrower race for the second round (53-47%). With Macron's re-election far from assured, markets will keep a close eye on polls in the coming two weeks. While most other presidential contenders have encouraged their supporters to vote for Macron in the run-off, the upcoming TV debate could play a decisive role in swaying voters. 

Inflation: Chinese CPI and PPI inflation figures for March surprised on the upside this morning as COVID has worsened supply chain bottlenecks. PPI inflation remains high but decreased to 8.3% from 8.8% in February. CPI inflation increased to 1.5% from 1.2% in February. Despite the increase, Chinese inflation is muted due to weak domestic demand and lack of pricing power as well as low food price inflation.

Equities: Equities marginally higher Friday but once again driven by the value defensive universe. The stagflation trade took equities lower by 1% last week but defensive outperformed value by almost 6% and value outperformed by almost 3%. On Friday Dow +0.5%, S&P 500 -0.2%, Nasdaq -1.2% and Russell 2000 -0.3%. Massive moves is yields continuing this morning taking both European and US futures lower. Markets in Asia lower as well with China tech leading the declines.

FI: European rates ended higher across the board on Friday led by the front end, with EGB spreads being rather mixed, amid a strong curve flattening move. 2y Germany rose 5bp to +0.04%. 10s30s eur swap flattened 2bp to -21bp on Friday.

FX: While last week was characterised by a general strengthening of USD and a drop in EUR/USD the single currency did mark a slight relief rally after Macron's comfortable win yesterday. EUR/USD has moved back above 1.09 while both EUR/SEK and EUR/NOK are hovering around multi-months lows around 10.25 and 10.45, respectively.

Credit: Credit markets ended the week on a somewhat mixed note, although tilting to the bearish side, particularly within the high yield space. Itraxx main held roughly firm, widening a mere 0.5bp to close at 77.1bp, while Xover was 4.5bp wider, closing the day at 370bp. 

Nordic macro

In Denmark, we get March CPI inflation and we expect it increased further to 5.2% from 4.8% in February. The increase is based on three factors. Firstly, oil prices caused sky rocketing petrol and in particular diesel prices in March. Secondly, the tobacco fee was increased by DKK5 on a 20-pack of cigarettes in January. We have not seen any actual price increase on cigarettes yet and expect it will come with the March and the April figures. Thirdly, we expect the inflation contribution from food prices to pick up following a surge in prices in the beginning of the year and a continued pressure from increasing prices on raw materials.

In Norway, core inflation has surprised to the upside in recent months but is still only marginally above the 2% target. Given stronger global inflationary pressures and higher wage growth, it is likely to continue to climb. Part of the surprise in February was a bigger impact on prices for food and other imported goods, such as furniture. To some extent, this was probably a result of one-off price adjustments, and we expect these effects to fade in March. We nevertheless expect the upward trend in imported inflation to continue, and so we expect core inflation to rise to 2.3% y/y. This would be slightly lower than Norges Bank anticipated in its March monetary policy report and should therefore pour cold water on market expectations of more than three further 25bp rate increases this year.