Rate decision in Poland

In focus today

• In the euro area, we receive February PPI data.

• In Poland, the Polish central bank wraps up its two-day monetary policy meeting. We expect an unchanged policy rate at 5.75%, in line with consensus.

• In Switzerland, inflation for March is published at 8.30 CET.

• In Sweden, Riksbank Minutes are released 09.30 CET. Hopefully, we will receive information about the individual preferences of board members about the timing of the first rate cut. Also, Riksbank Governor Bunge speaks 13.30 about the corporate bond market.

• In Japan, we get the third wage tally from the biggest labour union, Rengo. We will look for further clues to what extent, wage growth in big business has rubbed off on the SME segment.

Economic and market news

What happened yesterday

In the US, the ADP employment report came in higher than expected at 184k (cons: 148k). The Leisure & Hospitality sector accounted for the largest share of job gains (+63k), supporting the narrative of a supply-driven recovery. On the other hand, ISM services came in below expectations, printing 51.4 (cons: 52.7). Sub-components painted a mixed picture as business activity remains upbeat, but leading new orders and prices indices declined. The employment index remains below 50, as was the case in the manufacturing report as well.

Moreover, Fed Chair Powell emphasized that the Fed's task of bringing down inflation was "not yet complete," stressing the necessity for additional data confirming sustainable progress toward the 2% target before cutting rates. Regarding recent data, Powell remarked that it did not "materially change the overall picture." The Fed Chair also announced that the Fed would initiate a new review of its monetary policy framework this year.

In the euro area, HICP inflation declined in March to 2.4% y/y (cons: 2.5%), while core inflation declined to 2.9% y/y (cons: 3.0%). Service inflation remains sticky around 4.0% for the fifth consecutive month, while core goods inflation continues lower. Overall, the print is positive news for the ECB, however we continue to believe that the ECB will wait until the June meeting before delivering its first rate cut. For instance, the timing of Easter seems to have impacted inflation less than expected in March, and since Easter also spans April, we could see some effects in the April print.

Euro area unemployment rate was unchanged in February at 6.5% following an upward revision of the January number to 6.5% from 6.4%. Hence, the labour market is still very strong despite the stagnating economy.

Yesterday, we published a research piece on euro area productivity growth compared to the United States. The chronic underperformance of euro area productivity growth compared to the US over the past three decades is glaring. We expect weak euro area productivity relative to the US to continue. Continued weak productivity implies a structurally lower EUR/USD and lower ECB policy rates. For more details, see Research euro area: Euro area productivity will keep falling behind, 3 April.

In commodities, OPEC+ signalled that it would keep its oil output policy unchanged and further work on improving compliance, while Brent crude crept closer to USD90/bbl. Additionally, gold prices reached an all-time high around USD2300.00 per troy ounce during yesterday's session.  

Equities: Global equities were higher yesterday as two sets of pleasant inflation-related data temporarily calmed the fear of overheating, and bond yields flatlined. However, energy and materials still outperformed as these sectors are the biggest beneficiaries of improved manufacturing outlook and higher goods related prices. In the US yesterday, Dow -0.1%, S&P 500 +0.1%, Nasdaq +0.2% and Russell 2000 +0.5%. The positive manufacturing-related sentiment has carried over to Asia this morning with Japan and South Korea higher while China is standing out on the negative side. European and US futures are higher this morning.

FI: Long-end EGB rates ended close to unchanged in yesterday's session, but the volatility throughout the day was relatively significant. The 10Y Bund yield dipped to 2.36% following the European inflation figures, but the upward US ADP surprise reversed the situation in the afternoon. The level closed unchanged at 2.39%, in line with a largely unchanged 10Y UST yield at 4.36%. The pricing of ECB cuts in 2024 was unchanged at close to 90bp throughout the day.

Spain will tap the 5Y-15Y nominals segment and the 15Y linker, while France will tap in the 5Y+ nominals space. Finland is also active with tap auctions in the 10Y and 20Y segments.

FX: EUR/USD remained relatively stable in yesterday's session until the weaker-than-expected ISM services data initiated lower US rates and a broadly weaker USD, causing EUR/USD to rise to around 1.08. After a very poor March, NOK FX has been off to a strong start to the month with EUR/NOK falling from (close to) 11.80 down to the 11.60-level, driven by the rise in oil prices and the weaker USD. Akin to NOK, SEK strengthened during yesterday's session following the slightly softer US data. EUR/CHF continued its climb higher briefly breaching the 0.98 mark with markets eying the inflation data out this morning.