Pressure builds for Ukraine peace deal

In focus today

In the euro area, the Sentix investor sentiment indicator will be released today, revealing whether the sentiment improvement observed in February persisted into March.

In Sweden, several macroeconomic datapoints will be released. It is interesting to look at the production value index, household consumption, as well as industrial orders and turnover to get a better understanding on where the Swedish economy is heading. Further, we get the GDP-indicator for January. However, given the poor prediction capabilities of the indicator for the actual outcome we would not put too much emphasis on that number.

In Norway, we receive inflation figures for February. Surprisingly, core inflation for January rose to 2.8% y/y, largely driven by higher-than-expected growth in import prices. We believe that core inflation rose 0.25% m/m (SA) in February, leaving annual growth unchanged at 2.9%. This is somewhat higher than Norges Bank's estimate from PPR 4/24 in December of 2.7% and could start speculations that the disinflationary trend is slowing or even turning. After the Swedish data, risk may even be to the upside.

Throughout the week, focus will be on the meeting between US and Ukrainian officials on Tuesday. In Germany, we will closely monitor any developments concerning the substantial fiscal package that the incoming government agreed on last week.

Economic and market news

What happened over the weekend 

In the US, the February labour market report aligned closely with expectations, showing an increase of 151K (cons: +160K, prior: +143K). Given the recent layoff of 30,000 public sector employees and the reduced labour influx due to tightened immigration rules this summer, job growth is considered robust. Unemployment rose slightly to 4.1% in February from 4.0% in January. Overall, this report did not signal imminent concerns about recession or overheating although other indicators have painted a softening picture of the US economy lately.

In geopolitics, Trump has suggested the possibility of imposing additional large-scale US sanctions and tariffs on Russia, aiming to exert pressure on Russia to negotiate a peace deal in Ukraine. This week, US and Ukrainian officials are scheduled to meet in Saudi Arabia for discussion, with hopes that these talks will be more fruitful than Zelenskyy's visit to the White House last week, which resulted in the US suspending military aid and intelligence support to Kyiv.

In the euro area, the revised final accounts data for Q4 exceeded expectations, showing growth of 0.2% (prior: 0.1%). Additionally, the full-year GDP growth forecast for 2024 was adjusted upwards to 1.2% (prior: 0.9%), which is a positive development given the weak growth of 2024.

In China, February inflation figures saw the first decrease in 13 months, with CPI coming in at -0.7% y/y (cons: -0.5%, prior: +0.5%) as the country faces deflationary pressure. This decline was largely attributed to the earlier than usual lunar new year holiday and reduced food costs. Next month's figures will be monitored to assess whether Beijing's efforts to stimulate the economy are impacting consumer and corporate expenditures.

In Denmark, industrial production experienced a significant decline of 11.9% in January (SA). Even for Danish industrial production, which is relatively volatile, this represents a substantial decrease. Although the pharmaceutical sector played a major role in this drop, production excluding pharmaceuticals still fell by 7.7%.

Equities: Equity investors stopped the bleeding on Friday, with US equities higher on a better-than-feared job report and dovish comments from Powell. Selloff still big from a week-to-week perspective and this time it brought Europe along. S&P 500 gained 0.6% on Friday but -3.3% for the week while Europe shaved off 0.6% for the week. This takes Nasdaq and small cap Russell 2000 in correction territory from the post-election highs, S&P 500 -6% since its peak, equal weighted S&P 500 -5%.

Sector- and regional performance differences have been huge the last three weeks. US banks, cars and consumer discretionary stocks took the biggest hit last week, down in the ballpark of 5-10%. Although Europe were lower for the week, sector performance tells a completely different story, partly due to the different direction of yields. While export companies are more sensitive to tariffs, it is not those that have sold off but the domestic industries - real estate -8%, consumer durables -8% - that has taken the hit. Meanwhile, capital goods and materials have added 3-4%. Yields and Germany's stimulus program is of course at the heart of this.

Retail investors were faster than professional investors in timing this selloff with the AAIIs bull-bear spread sliding into negative already at the start of the year. Retail investors have built a reputation of buy-the-dip-strategies the last five years, however, despite the correction territory in many US indices, the bull-bear spread remain at historical lows. The Fear-and-Greed index is at Extreme Fear. The jury is still out, but there is a risk that retail investors will be slower this time around, as the Trump and Fed put is more absent. Unlike the last five years, dovish comments from Powell - playing down the recent drop in sentiment surveys and uptick in inflation expectations as noise - did not sooth equity investors on Friday, with US equity futures lower again this morning. Bearish commentary from Trump in Fox News over weekend probably overshadowed Powell's attempt, with Trump arguing that the US economy will undergo "a period of transition" due to tariffs. He explicitly downplayed the Trump put "Look, what I have to do is build a strong country. You can't really watch the stock market. If you look at China, they have a 100-year perspective". This is quite a U-turn from Trump 1.0. It goes without saying, China is hardly a role model for equity investors, with indices still some 25% down from its 2021 peak. 

FI&FX: While Friday's NFP report failed to do much for US fixed income, US yields eventually rose going into the weekend following remarks from FOMC Chair Powell who said that although uncertainty has increased, the US economy is "fine" and that there is no need to hurry to adjust the policy rate. Overnight, part of this move has been reversed as we start the week on a sour note in terms of risk appetite with the big European and US equity futures in red and global yields lower. The USD has gained back some of what was lost during an eventful week, during which EUR/USD went from below 1.04 last Monday to peak at 1.0889 on Friday afternoon before eventually closing the week at 1.0835. German yields steadied on Friday after the rout following the announcement of the German spending package. In the Scandies, the SEK remains the clear Majors outperformer with EUR/SEK breaking firmly below the 11.00 threshold and now trading just above the 10.90 figure. Meanwhile EUR/NOK continues to edge modestly higher trading just below the 11.80 mark.