Strong euro area wage growth adds pressure on ECB

Market movers today

Norway. Today, focus will be on Scandi data releases. Norway's May CPI print is out and we believe core inflation has remained high at 6.2%, see more below.

Sweden. We also get a string of data from Sweden that provide us with better understanding of how the real economy is doing. A rebound in retail sales indicates that we could observe a similar pattern in household consumption for April. Production figures will also be of large interest: January and February figures looked promising, but March data showed a 1.1% month-on-month drop, see more below.

The 60 second overview

Wage pressures: ECB's favourite wage measure, euro area compensation per employee, increased 5.2% year-on-year in Q1. With the current momentum in mind, that is strong wage growth, not least considering that the March ECB staff projections had 5.3% wage growth for the year as a whole. This adds further pressure on the ECB.

US initial jobless claims ticked in higher than expected yesterday. As 261,000 filed a claim for unemployment benefits, up 28,000 from last week. Looking at a state level, no one in particular stands out, indicating this could be a clearer sign of a more broadly cooling labour market. The market also reacted by sending US treasury yields lower.

China: Producer price inflation declined more than expected to -4.6% in May, the lowest since early 2016. Food price inflation in particular slowed to 1.0%. This weighs further on consumer prices, which are barely increasing these days. This fuels speculation that we could see easing measures from the People's Bank of China soon.

FI: The global bond markets rebounded yesterday as bond yields declined and the periphery outperformed the core-EU markets. Bunds rallied some 5-6bp, while Treasures rallied some 7-8bp. The markets are looking forward to the ECB and FOMC meetings next week as well as US inflation data. Yesterday, we published our ECB review. We expect a rate hike of 25bp.

FX: NOK rallied and USD and CAD sold off yesterday amid relatively mixed risk sentiment. EUR/USD rose above 1.0750 and USD/JPY to 139. EUR/NOK fell close to 11.70 - the lowest in about two weeks.

Credit: After several days of continuously high activity in the primary market, issuance activity slowed markedly yesterday, with only one EUR transaction from French HY issuer Infopro. Secondary spreads were more or less unchanged, with iTraxx Xover and Main tightening marginally (1.6bp and 0.3bp, respectively).

Nordic macro

In Sweden, a string of April data is released today, providing further information on how Q3 started. Household consumption has been trending lower for two years, although it began at a high level due to the recovery after the significant drop in 2020. Retail sales showed an uptick in April, which should be interpreted as a rebound after the weak figure in March. However, a similar trend may be observed in household consumption as well.

Production figures will be of large interest; January and February figures looked promising, but March figures showed a 1.1% month-on-month drop. PMI for the manufacturing sector has continued to decline and is now at the lowest level seen in 2 years. It's important to note that the correlation between survey data and actual performance does not always align, so the figures will provide valuable information regarding the state of the economy.

Norwegian core inflation is still high but no longer seems to be accelerating. Behind the headline figure, however, we can see that while prices for domestic goods (including agricultural produce) are now falling, prices for services are clearly still rising, and prices for imported goods have also now begun to pick up sharply. This last factor is probably down to the decline in the NOK since the autumn, and there is much to suggest that it will remain weak for some time. Core inflation has likely remained high, and we expect it to be 6.2% year-on-year in May.