Sverre Holbek, CFA
Danske Bank A/S
Market movers today
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The first ECB meeting of the year is due to take place today. We do not expect any significant announcements or changes to the ECB’s policies, given that only six weeks have passed since major adjustments to the QE programme were made. Although inflation has increased above 1% for the first time since 2013, this is due mainly to energy price inflation, consistent with the ECB’s own forecasts. Therefore, we do not expect it to react with a hawkish stance or to conclude that inflation is on a sustainable path towards 2% yet. Please see ECB preview: still dovish despite better data, 13 January 2017 for details.
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The US Philly Fed Manufacturing index is due out at 14:30 CET.
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There are no scheduled data releases in Scandi markets today.
Selected market news
Rising inflation sends Treasury yields higher following weak tone on most European government bond markets and Yellen comments. Yesterday, data showed a further rise in US inflation. Headline was in line with expectations, rising to 2.1% y/y, while the core came in 0.1pp higher than expected at 2.2% y/y. Across the Atlantic, long-dated Italian supply and the upcoming auctions today in France and Spain set a bearish tone for European government bond markets, which also added to pressure on US Treasuries. In addition, Fed Chair Janet Yellen’s warning of a ‘nasty surprise’ if waiting too long before raising interest rates, added to the bearish sentiment later in the US session. Yellen also said that the Fed expects to raise the Fed funds rate ‘a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3%’. In combination, these factors sent 10Y Treasury yields, for example, higher by some 10bp compared with the 2017 lows reached on Tuesday.
US stocks were broadly unchanged yesterday. Notably, the wider market shrugged off the continued stream of strong banking sector earnings reports, with both Goldman Sachs and Citigroup delivering solid Q4 results.
UK house price index signals slowing price growth ahead. The RICS index released overnight declined to +24 in December from +29 the month before, indicating that a smaller proportion of respondents expect price gains. This is the first decline since the immediate aftermath of the June 2016 ‘Brexit’ vote, although this latest reading is still consistent with solid price increases. On a national level, house prices have continued to increase since June, although central London house prices have fallen for the past 10 months, presumably on concerns over the UK’s break with the EU as well as higher taxes on expensive properties.
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