Trump wins New Hampshire

In focus today

Today, we will get January PMIs for both the euro area and the US. They will be the first indicator on how the major economies performed at the beginning of 2024. 

In the euro area, the manufacturing PMIs have risen since October in a signal of activity bottoming out in Q4 2023. We expect that the gradual rebound continued in January. The service PMIs have been relatively stable around the 48.5 level in the previous five months, and we expect this to be the case also in January.

From Sweden we will get the monthly inflation survey from Prospera for January. We see it as unlikely to deliver any big surprises, as inflation is gradually easing towards the target.

In the afternoon at 15:45 CET, Bank of Canada will announce their rate decision after their policy meeting. In line with market consensus, we expect them to hold policy rate unchanged at 5.00%. We will keep an eye on any signals on how long the bank expects to hold the rates at current level. Our base case is for a 25bp rat cut in March although recent developments has increased the risk that the first rate cut will not come until summer.

Economic and market news

What happened overnight

In the US, Donald Trump has now won two out of two states in the race to become Republican nominee in the presidential election. At the deadline for this publication Donald Trump won 11 out of 22 delegates corresponding to 54.6% of the votes, while Nikki Haley won 8 corresponding to 43.5%, with three delegates left to be decided. Haley indicated last night that she will continue in the race despite her significant defeat.

In the red sea, the US hit two anti-ship missiles from the Houthi rebels in Yemen, which were aimed at the Red Sea and prepared to launch.

In Japan, we got PMIs for January. The manufacturing PMI was more or less unchanged (48.0 in January against 47.9 in December). Service PMI increased from 51.5 in December to 52.7 in January. This means, that we continue to see modest decline in manufacturing and an even stronger service sector in Japan. Continued strong domestic demand in Japan keeps the upside risk to inflation present.

What happened yesterday

Turkey's parliament approves Swedish NATO membership bid. The Swedish NATO bid has now overcome a major hurdle and an about 20-month delay to become a NATO member. President Erdogan's AKP and its allies all voted in favour of Swedish membership. He is expected to sign the bill in the coming days. The only NATO member left to approve Sweden's bid is Hungary.

In the euro area, the results of ECB's Q4 bank lending survey was published. The survey was broadly in line with expectations, and hence we do not see it altering the monetary policy stance at the upcoming monetary policy meeting on Thursday. Most banks reported that credit standards are still tightened in 2023 Q4 and that loan demand declined. Yet, it was to a smaller extent than in the previous quarters, as more banks reported unchanged credit standards and loan demand while fewer reported tightening standards and decreased demand than in the previous survey.

Consumer confidence in the Euro area declined unexpectedly from -15.1 to -16.1. Market expected an increase to -14.3. Consumer confidence is thereby still stuck at low levels which is likely also the explanation to the sluggish consumption ratio. Hence, with consumer confidence still at low levels the upswing in private consumption that better confidence would support is still not in sight.

In Denmark, consumer confidence rose from -13 to -8.4. The consumer confidence is still at low levels but increasing again, after it fell in December. The increase was mainly driven by improved assessment of the economic and household financial situation over the last 12 months.

Equities: Global equities ended higher yesterday as most US indices rally into the cash close and hence secured another set of all-time highs. That said, Europe and Japan were still lower and in global indices 4 out of 10 sectors were lower. Earnings season is picking up speed and if history repeats itself, we will see some days with what we call odd sector correlations as big individual companies are disturbing the picture because of either super solid or super weak earnings. Yesterday in the US, Dow -0.3%, S&P 500 +0.3%, Nasdaq +0.4% and Russell 2000 -0.4%. Asian markets are mostly in red this morning with China sticking out on the positive side as people continue to speculate in very equity market focus stimulus coming. European and US futures are higher. In Europe some of this is catch-up to the US cash session while US futures are boosted by better-than-expected earnings after the bell yesterday.

FI: Global yields rose across the board throughout yesterday's session as markets digested the rumours of new Chinese stimulus and the still significant amount of issuance. 10Y Bund yields ended up by 6bp, while the front end was up by a couple of basis points. Implied volatility drifted slightly higher in EUR swaptions markets, while the Bund ASW-spread continued to widen.

FX: USD/JPY could not really decide what to do after the well-anticipated BOJ decision, first a knee-jerk spike, then a sharp sell-off, and after that back above pre-BOJ levels. CNH has held on to gains after the news about government support to the Chinese stock market. Meanwhile, the USD firmed vs EUR and Scandies where USD/SEK tried to make USD/NOK company above 10.50. USD/SEK has gained 6% in three weeks (!) - we continue to like the topside as a strategic position for 2024.