No surprises from the ECB

In focus today

In the euro area, focus today is on final March inflation data for Germany, France, and Italy. The final data will allow us to estimate how much the timing of Easter impacted the March numbers and to what extent we should expect an effect on the April numbers. 

From the US, University of Michigan's preliminary April consumer sentiment survey is due for release in the afternoon. The Fed focuses on the consumers' inflation expectations, which have so far remained well anchored close to the 2% target even if market-based inflation expectations measures have recently edged higher on the back of rising oil prices.

From China, trade data for March will be released. Export growth has trended higher over the past 3-4 months and PMI export orders have been strong in March. However, monthly export data are quite volatile so we could see a set-back after some strong months in January/February. We may also get credit and money growth for March but no specific date has been published.

From Sweden, we expect today's inflation print (March) to show that the disinflation process continues steadily, although the early Easter may cause disruptions to price patterns especially when it comes to travel. Food prices constitute a downside risk based on data from peers (Nordics). We forecast CPIF and CPIF excl. Energy at 2.6% y/y and 3.2% y/y, which is 0.1 percentage points below the Riksbank's new forecasts on both accounts.

Economic and market news

What happened overnight

In the space of geopolitics, the US tried to deescalate Israel-Iran tensions by engaging for China to urge restraint from Iran. Iran has vowed to respond after accusing Israel of an attack on their embassy in Damascus which killed high-ranking military personnel. This risks escalating tensions in the region.

From Asia, Bank of Korea kept monetary policy unchanged (tight) as inflation remains sticky, while the USD/JPY lost slightly but remained above 153 as Japanese Finance Minister Suzuki reiterated his intention to respond if there are excessive moves in the exchange rate.

What happened yesterday

The ECB left policy rates unchanged yesterday as unanimously expected, and as such market impact was muted. While there was no direct confirmation of a June rate cut they reiterated that it will be appropriate to reduce rates if the economy develops as expected. We expect the ECB to deliver three 25bp cuts this year, but risks are skewed towards fewer cuts due to somewhat sticky domestic inflation.

Several headlines out of China indicated that the country is done with fiscal and monetary stimulus, with the NDRC stating at a news conference strong support for investments and consumption. This comes after yesterday's weaker than expected CPI print.

From the US we got mostly hawkish signals. Initial jobless claims surprised slightly to the downside at 211k (cons: 215k), while the Fed's Williams, Collins and Barkin all suggested that a near-term rate cut would not be necessary.  

In Sweden, Prospera inflation expectations were anchored at the target for all horizons. Riksbank's Jansson said that as he sees is, the main threat to a rate cut in May will be if other central banks postpone their rate cuts as this could weaken the SEK and through that channel raise inflation.

In Norway, the mainland GDP figure for February printed lower than expected at -0.2% m/m (consensus: -0.1%), although December growth was revised up to 0.6% (prev: 0.4%).

Equities: Global equities were higher yesterday, shrugging off fast Wednesday's CPI disappointment. Interestingly, this was mostly led by US cyclical growth stocks. Hence, 7 out 10 sectors in MSCI World were lower yesterday, and 14 out 25 industries were lower in the S&P 500 where cyclicals outperformed defensives by almost 2%. This massive rotation yesterday is hard to justify 1:1 from top-down data yesterday, but it underscores how one should be careful in being too negative and defensive when growth is strong even as we have a looming inflation challenge. In US yesterday, Dow -0.01%, S&P 500 +0.7%, Nasdaq +1.7% and Russell 2000 +0.7%. Most Asian markets are lower this morning led by China. Japan is moving more in tandem with the global/US trend and is higher this morning. US and European futures are higher this morning.

FI: Yesterday's ECB meeting was largely a non-event as judged by the market reaction. European rates traded mostly sideways through the ECB press conference, albeit 10y Bunds ended the day at 2.46%, which was 2bp higher than Wednesday's close. Italy was the underperformer by widened 4bp to core amid a minor curve steepening.

FX: Yesterday's session was mostly about digesting the strong US March CPI print. EUR/USD is approaching the 1.07 mark. Intervention jitters are still present in Japan, with USD/JPY above 153. EUR/GBP continues to trade within a very tight range around the 0.8550 mark. EUR/SEK is consolidating around 11.50. EUR/NOK is hovering around 11.60. EUR/DKK briefly rose above 7.46 yesterday and thus continues to trade at a relatively high level.