Trump and Putin phone call opens door to Ukraine peace talks

In focus today

From the US, January PPI and weekly jobless claims are due for release. It will be interesting to see if the PPI-figures come in higher than expected like yesterday's CPI.

In the euro area, focus turns to industrial production data for December, which is expected to show a small decline of 0.6% m/m by consensus. However, the decline will likely be larger than 0.6% m/m as German industrial production declined 2.4% m/m in a sign of a still weak industrial sector.

In Sweden, Riksbank's vice governor Per Jansson holds a speech at 08:00 CET on "Trust and flexibility going forward". We will be watching to see if Jansson aligns with Aino Bunge's dovish tones from yesterday.

Economic and market news

What happened overnight

In Japan, wholesale inflation for January printed higher than expected at 4.2% y/y (cons: 4.0%), while the monthly print was 0.3% m/m, as expected. This was the fifth consecutive acceleration in wholesale inflation, reflecting persistent price pressures and bolstering the case for further BoJ rate hikes this year, as we project.

What happened yesterday

In geopolitics, Trump and Putin had a 90 min call yesterday and the two countries have agreed to kick off negotiations to end the war in Ukraine. Trump later had a separate call with Ukraine that did not last as long, and it remains unclear what will Zelensky's/ Ukraine's role be in the upcoming talks, or if there is any. US defence secretary Pete Hegseth said that its unrealistic for Ukraine to restore its pre-2014 borders or for Ukraine to become a member of NATO.

In the US, January CPI surprised sharply to the topside as headline CPI grew by 0.5% m/m SA (cons. +0.3%, Dec +0.4%) and core inflation accelerated to 0.4% m/m SA (cons. +0.3%, Dec. +0.2%) - for more detail please see Global Inflation Watch - Tariff Uncertainty blurs the outlook, 12 February. Additionally, we will evaluate our dovish Fed view of four rate cuts in 2025 over coming days.

While having not signed any tariffs yet, Trump repeated his plans to impose reciprocal tariffs very soon. The comment comes shortly before a visit from Indian Prime Minister Narendra Modi, and the Trump administration having complained about India's high tariffs on U.S. imports. With a U.S. CPI-release on Wednesday that surprised to the upside, economists have once again highlighted the possible inflation risks associated with tariffs. Later today, we host a webinar at 10.00-10.45 CET providing an update on the whole tariff situation. 

In the euro area, Bundesbank President Nagel stated that the ECB should ease its policy gradually rather than attempting to reach the elusive "neutral" interest rate, which is estimated to be between 1.75% and 2.25%, according to last week's r*-publication from the ECB. That said, the remarks are not surprising given that Nagel is viewed as one of the über-hawks of the ECB.

In Sweden, Riksbank Vice Governor Bunge was on the wire, talking about the state of the economy and monetary policy. Bunge emphasized that inflation has been close to 2% and indicators suggest that inflation will align with the target going forward. Looking at the upside surprise in January, she pointed out that it remains to be seen what caused this and stressed that individual figures should be interpreted with caution. Overall, her remarks were somewhat dovishly twisted.

Equities: Equity investors took the inflation surprise with ease. Global equities were admittedly slightly lower (MSCI World -0.1%) but that did not stop the buying in Europe and especially Germany, a full 1% higher (11% YTD). Even Nasdaq was in positive. So, inflation did not trigger a clear-cut risk off session, which we argue it should not. However, it is still surprising to see markets coping so well with negative news and yield jumps. Remember new tariffs also taken with a shrug earlier this week. Perhaps this comes down to the not overly aggressive positioning in markets. Our correction monitor admittedly shows overbought conditions but far from an outright sell signal. Defensives outperformed, but only marginally. The only sector sticking out was energy, reverting -2%. Small caps underperformed again, as has been the case the last week, taking underperformance to 1.3p.p. YTD globally. Futures are higher this morning.

FI: US Treasury yields rose significantly on the back of higher-than-expected US inflation data and the market continues to reduce expectations for future rate cuts by the Federal Reserve. Currently just one rate cut is priced in for the rest of 2025, which is a significant reduction from the autumn 2024, when 6-7 rate cuts were priced in for 2025. The negative reaction from US also sent European government bond yields upwards across the yield curve.

FX: Whipsaw action in EUR/USD with an initial flurry to the low 1.03's on the back of yesterday's hotter-than-expected US CPI print, before turning around and retracing all the way to 1.04 on Trump's announcement of his call with Putin. The EUR found broad support, with EUR/JPY and EUR/CHF moving firmly higher, the former rallying close to 1.5%. Scandies did not benefit from the EUR-move and instead ended the day close to session highs vs EUR. CEE currencies did however benefit, with PLN, CZK and HUF all outperforming the single currency.