US jobs growth in focus

Market movers today

The macro highlight today will be the February US jobs report. We expect nonfarm payrolls growth to moderate to 220k, after effects of warm weather and heavy seasonal adjustments in January fade. Overall, leading indicators suggest that labour market conditions have remained tight amid a recovering growth outlook (see also Research US - Fed finds comfort in retightening financial conditions, 3 March). The FOMC blackout period will begin on Saturday, so Fed still has the option to guide the markets after the Jobs Report.

In Norway and Denmark, inflation figures are on the agenda. We expect Norwegian core inflation to ease to 6.2% in February, which would still be higher than Norges Bank anticipated in the December monetary policy report. Inflation likely also eased in Denmark driven by lower energy prices, but rent prices create additional uncertainty.

In the UK the monthly GDP indicator will give insights into how the economy started into the new year. We expect it to show stagnation on a monthly basis, following a 0.5% decline in December.

The 60 second overview

Bank of Japan: Bank of Japan remained an outlier among global central banks and left its ultra-loose monetary policy unchanged at the last meeting of Governor Kuroda, in line with our expectations. The yen weakened a tad after the decision. Recent data on the Japanese economy has been to the weak side, and hence not supported monetary policy tightening for the time being - the BoJ is not convinced that the current inflationary pressures are persistent. However, we think it is a matter of time before BoJ will start tightening with at least tweaking the YCC during Q2. The outcome of the spring wage negotiations could have a major impact on how soon the BoJ could end its ultra-loose monetary policy. Japan's parliament has now formally approved Kazuo Ueda to succeed Kuroda as governor from April 9.

FI: Yields declined after the weaker than expected jobless claims that sent 10Y US Treasuries back below 4%. This also had a spillover effect on the European markets, where 10Y German government bonds initially had increased some 5-6bp during the day, but ended the day at an unchanged level. The US curve steepened significantly between 2Y and 10Y given expectations that the Federal Reserve may just do 25bp rather than a 50bp hike. The curve was more than 100bp inverse between 2Y and 10Y, but is now below 100bp again.

FX: USD/JPY firmed after Bank of Japan left monetary policy instruments intact. EUR/USD continued the past days' slow move higher ahead of non-farm payrolls. GBP/USD recovered yesterday but is still in the low 1.19s, while both SEK and NOK weakened. EUR/SEK is back at square one where it traded before the Riksbank's U-turn. EUR/NOK has printed a new year high above 11.31 ahead of key CPI data.

Credit: The secondary corporate bond market was flattish d/d with iTraxx Main unchanged at 76bp, while iTraxx X-over widened 1bp to 397bp. Attention yet again on the primary market with significant new issue activity. In the Nordic space we saw Finnish based Neste print EUR1bn in total divided in two tranches with a EUR500m 6 year Green bond with a 3.875% coupon and a EUR500m 10 year Green bond with a 4.250% coupon.

Nordic macro

Norwegian core inflation surprised strongly to the upside in January, with the annual rate rising to 6.4%. The January numbers are always associated with considerable uncertainty, especially in periods with big price movements. Price increases in many product groups slowed appreciably towards the end of last year, so we reckon that part of the rise in January was a correction of price levels rather than the start of inflation accelerating again. As expected, rents also rose more than normal, as these are linked to inflation in November. There is still great uncertainty, but we expect the annual rate of core inflation to ease to 6.2% in February. This would still be higher than Norges Bank anticipated in the December monetary policy report (5.9 %).

In Denmark, we also expect to see a decline in inflation driven by energy prices, where especially declining market prices for natural gas during recent months creates potential for lower consumer prices. Rents, which make up 19.5% of the CPI, create extra uncertainty in February. Even though Statistics Denmark have started to incorporate rent changes in the CPI on a quarterly basis, it is the February print that reflects the big annual changes. Some rents are indexed to inflation and will hence have risen, although the increase has been capped politically. Rents in especially social housing can to some extent reflect higher interest rates. We expect that rents will boost inflation from February and throughout the rest of the year.

Preliminary unemployment figures for February in the shape of Statistics Denmark's unemployment indicator are also due. Projections based on the weekly figures from the Danish Agency for Labour Market and Recruitment point to unemployment rising from 2.7% to 2.8% in February.