Pressure on BOJ grows

Jens Nærvig Pedersen Danske Bank A/S

Market movers today

In the US, household spending probably declined in December, with high-frequency indicators suggesting that services demand slowed toward year-end.

In Scandinavia, retail sales for December are on the agenda in Sweden and Norway. Furthermore, the Swedish unemployment rate might reveal an uptick in December.

The 60 second overview

Japan: Tokyo CPI in January increased more than expected. Headline inflation was 4.4% and core inflation 3%. The 10Y Japanese government bond yield has risen close to the 0.50% yield curve control cap set by Bank of Japan again. Yesterday, the IMF called for Bank of Japan to allow the 10Y yield to rise more citing rising inflation risks.

US: The US economy expanded at a slightly faster pace in Q4 than we and consensus expected. GDP rose 2.9% q/q AR (from 3.2% q/q AR, Danske 2.8%). Investments continue to weigh on growth, largely driven by lower residential investments, as expected, and the contribution from net exports fell sharply, as exports declined more than expected.

FI: In a choppy trading session with an underlying rising trend higher in yields European rates markets were the theme of yesterday. US GDP figures were slightly better than anticipated, in what was otherwise without big market drivers.

FX: Given the move higher in oil and relative rates both CAD and NOK were unsurprisingly among the top performers in yesterday's session. Also CNH did well with renewed optimism with respect to China. EUR/USD traded heavy throughout the majority of yesterday but erased part of the losses during US hours. Meanwhile, SEK and JPY were among the underperformers of the day with USD/JPY notably back above 130.

Credit: Credit markets were back in risk-on mode on Thursday despite flat to slightly rising base rates. Itraxx Europe tightened 1.4bp to close at 78.6bp and Itraxx Xover tightened 8.6bp to close at 411.2bp. With reporting season ongoing, primary markets were mainly active in the SSA space with, among others, the republic of Finland printing a 15yr EUR benchmark at MS+10bp.

Nordic macro

In Norway, retail sales grew again towards the end of last year, which was a surprise given the headwinds from increased consumption of services, negative real wage growth and higher interest rates. Much of this was because consumers drew on their savings to support their spending, an effect which will probably fade or reverse in the first part of 2023. We also reckon that Black Week will have pulled some Christmas trading forward to November. Figures from BankAccept for card transactions in December suggest that Christmas trading was fairly healthy nonetheless, so we expect retail sales to fall just 1% m/m (s.a.).

Despite a, thus far, resilient Swedish labour market with significant shortage of skilled labour, we expect the December LFS to reveal an uptick in the unemployment rate. Meanwhile, we expect December retail sales to post a drop after a Black Friday-related rebound in November.

Author

Jens Nærvig Pedersen

Danske Bank A/S

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