US-China relations remain tense

Market movers today

Today, focus will be on Sweden where we get January inflation data and Riksbank minutes. We expect both headline and core CPIF to print higher than Riksbank's forecasts: CPIF at 10.2% y/y and CPIF excl. Energy at 8.4 % y/y.

US markets are closed today for the Presidents Day.

Tomorrow, focus turns to preliminary February PMIs from the US and euro area. The German ZEW index is also out.

On the central bank front, FOMC minutes will be published on Wednesday but considering the strength in macro data and the hawkish tone by Fed speakers recently, the message might be outdated by now. We also have the Reserve Bank of New Zealand meeting on Wednesday and the central cank of Turkey meeting on Thursday.

The 60 second overview

Central banks: Central bankers had mixed views on the inflation outlook and the most recent upbeat data releases on Friday. ECB's Schnabel said markets might underestimate inflation risks, but later Villeroy appeared more dovish, noting that rates have 'clearly passed the neutral rate' and emphasizing that ECB is not on a pre-committed path.

In the US, Fed's Bowman (voter) noted that the recent data suggests Fed's actions 'have yet to be effective' and that more rate hikes will be needed. Barkin (non-voter) also said labour demand remains too high relative to supply. Barkin (non-voter) was less worried, and highlighted that the seasonal adjustment issues (potentially linked to the unusually warm weather) might have distorted the recent employment and retail sales figures. He favoured 25bp hikes also going forward.

Munich security conference: Relations between the US and China remain tense after US Secretary of State Blinken met with China's top diplomat Wang at the Munich security conference over the weekend. Blinken noted that there was 'no doubt' the balloon recently shot down by US military was used for surveillance purposes, while Wang called the US actions 'almost hysterical'. Blinken also warned China against providing military support for Russia, saying that US was concerned China was planning to send weapons over to be used in the war.

PBoC: The People's Bank of China left its Loan Prime Rates (LPR) unchanged overnight, which was widely expected after it did not make changes to its medium-term lending facility rate (MLF) last week.

FI: After an initial sell-off on hawkish comments from Schnabel on Friday saying risks are for markets underestimating inflation outcomes, European rates staged a strong rally of 11bp from the peak to the trough as Villeroy voiced more moderate tunes. Rates markets have repriced as the expectations for peak policy rates have seen a significant change since the US labour market and CPI reports earlier this month, talking peak deposit rate to almost 3.75% in ECB and slightly above 5.25% in the US. In particular the ECB seems divided about the future need of policy tightening. 2y UST yields are 50bp higher than the US labour market report now at 4.62%.

FX: Last week was characterised by JPY and NOK weakness amid the broader tightening of global financial conditions, lower oil and higher USD rates. EUR/USD temporarily moved below the 1.0650 level on Friday but rebounded during US hours. EUR/SEK has edged slightly higher again trading just south of 11.20.

Credit: The increased focus on rising rates and the potential ensuing damage to the economy and default rates once again drew attention to Friday's credit markets. This left credit indices weaker with iTraxx main wider by 2bp to 77.8bn and Xover wider by 12bp to 404.5bp.

Nordic macro

Sweden: Both January inflation (08.00 CET) and Riksbank minutes (09.30 CET) are out Monday morning. We expect both headline and core CPIF to print higher than Riksbank's forecasts respectively: CPIF at 10.2 % yoy vs 9.3 % yoy and CPIF excl. Energy at 8.4 % yoy vs 8.2 % yoy. Markets' call is closer to Riksbank's view than our own. That said, January inflation tends to be volatile and there is the usual uncertainty for the January print given updated basket weights. Hence, any outcome either higher or lower should not be over-interpreted, and we will get two more inflation prints before the next Riksbank meeting in April.

The Riksbank minutes will be scrutinized about how the four 'old' board members came to change their minds about active quantitative tightening. During the autumn meetings these members were content with reducing the bond portfolio by just letting bonds mature, to shift their stances to active QT with the two new board members (Thedéen and Bunge) at the February meeting. This time we would also not be surprised to see the krona being discussed by all board members and we are especially keen on any thoughts concerning potential policy action being linked to the SEK and how Board members view the SEK toolbox.