Markets in waiting position for US March CPI

In focus today

Today's focus will be on the US March CPI, where we forecast both headline and core inflation at +0.3% m/m SA. Higher oil prices continue to lift headline inflation, but the Fed focuses more on the underlying price pressures, not least after concerning upticks in services inflation and strong labour market in early 2024. In the evening, minutes from FOMC's March meeting are also due for release. 

This morning, in Sweden we get the GDP Indicator for February as well as PVI and consumption indicators. We expect in the numbers to support our case for improved economic activity and our view of a decent start to the year.

We will get March inflation from Norway this morning. There has been a clear disinflationary trend in Norway in recent months. Although we believe that the declining trend will continue throughout the year, we will probably see a certain correction after the low February figures. Hence, we expect core inflation rose 0.3% m/m, which will pull annual growth down to 4.6% in March. In that case, it will be marginally lower than Norges Bank's estimate from the monetary policy report of 4.7%.

Overnight, Chinese CPI for March is due and is expected to decline from 0.7% y/y to 0.4% y/y as Chinese New Year effects fall out again. 

Economic and market news

What happened overnight

As expected, the Reserve Bank of New Zealand kept its policy rate unchanged at 5.50%. Otherwise, things were generally quiet as markets await today's release of the US March CPI.

What happened yesterday

The ECB bank lending survey showed that credit standards remained tight in the euro area while loan demands from firms declined substantially. This suggests a muted growth outlook for the euro area in the next quarters, which supports a June rate cut from the ECB.

The US NFIB's small business optimism index declined to 88.5, which is the lowest level in 11 years. The decline was mainly due to concerns about inflation, and rising input and labour costs.

In the chips space, we got news that TSMC was awarded a USD 6.6bn subsidy for advanced semiconductor manufacturing in the U.S, to support a planned investment of USD 65bn. TSMC supplies the world's most advanced chips and most of their current capacity is in Taiwan, so this is a step in the direction of more diversified semiconductor production capacity and in general an example of major diversification of supply chains.

Equities: Global equities were higher yesterday with European markets going against the trend as especially defence stocks took a heavy beating. The turnaround in defence stocks came as stories about increased likelihood of ceasefire in Gaza got more attention across newswires. Sector rotations revealed a bit of a wait-and-see game ahead of CPI today, ECB tomorrow and the earnings season start on Friday. In US yesterday Dow -0.02%, S&P 500 +0.1%, Nasdaq +0.3%, Russell 2000 +0.3%. Asian markets are higher this morning led by China. US and European futures higher as well.

FI: Long-end rates in the US and Europe gradually drove lower in yesterday's session, reversing some of the sharp rises seen on the back of Friday's NFP report. There was no obvious trigger explaining the move, which happened smoothly through the session. 10Y Bund yields dropped 6bp to 2.37% with the 2s10s curve bull flattening 3bp, while 10Y UST yields are 7bp lower at 4.35%. The 5Y5Y EUR inflation swap rate fell a few bp to 2.31% as energy prices reversed a bit of the recent gains with Brent now trading below USD90/barrel. Long-end BTPs outperformed the core despite the worsening outlook for the deficit presented by the Italian government yesterday.

FX: Yesterday's session did not deliver any major moves in G10 FX. EUR/USD remained around 1.0850. USD/JPY remains slightly below 152. EUR/SEK is hovering around 11.45. EUR/NOK is trading just below 11.60. EUR/GBP declined around 0.8560.