Will the FOMC Minutes give clues on the timing of rate cuts?

In focus today

Today, we receive euro area consumer confidence figures for February. Consumer confidence is still at a low level which is likely the reason for the sluggish consumption ratio. Consumer confidence rebounded strongly during the first half of 2023 but has since stagnated. An increase in consumer confidence could be the trigger for higher private consumption in 2024 as real incomes improve.

Tonight, minutes from the FOMC's January meeting will be released. Markets will keep a close eye on any clues regarding the timing of the first rate cut, which we now expect to come in May. In addition, the Fed's Bostic and Bowman will be on the wires ahead of the release.

Overnight, Japanese PMI figures kick off the slew of PMI data that is due tomorrow.

Economic and market news

What happened overnight

Japanese export volumes declined 4.6% in January indicating a slow start to the year following the technical recession in 2023H2. That said, January PMIs were more uplifting but have not been a good GDP indicator recently.

What happened yesterday

Yesterday we got Q4 GDP figures for Denmark, which showed an impressive rebound with a growth rate of 2.0% q/q. Furthermore, Q3 growth was revised up to 0.4% from -0.7%. The development was largely driven by pharmaceuticals, where manufacturing GVA increased almost 8% q/q in Q4, which also drove exports higher. Consumption also ticked up with quarterly growth of 1.7%, indicating somewhat less cautious consumers. All in all, this means the economy grew 1.8% for the year 2023, which is substantially more than the Eurozone. However, when excluding pharmaceuticals, the numbers show a decline of 0.1%.

Euro Area negotiated wage growth declined to 4.46% in Q4 from 4.7% y/y in Q3. This was in line with other trackers from the ECB and suggests that wage growth peaked in Q3. The ECB has repeatedly told markets that they await more data on wage growth, so this should provide some comfort, though they will likely still be cautious as we have yet to get the full overview of wage growth in Q4, which we will get with the "compensation per employee" print, due for release on 8 March. The market reaction was muted, with pricing still suggesting the first rate cut in June.

Finally, we got somewhat dovish comments from Bank of England governor Andrew Bailey who said that it was "not necessary" to wait for inflation to come back to target before cutting rates, adding also that the Bank was particularly focused on whether services inflation and wage growth were on a sustained path towards headline inflation. The market reaction was muted.

Equities: Global equities were lower yesterday with DM underperforming EM. DM is driven by macro and inflation data while EM is driven by China and the next step of policy support for the property sector. Defensive value outperforming globally on the higher for longer narrative but also boosted by earnings reports and earnings expectations yesterday. Investors embracing the earnings from retailers while taking some chips of the table in tech space ahead of tonight's reporting from Nvidia. Yesterday in the US Dow -0.2%), S&P 500 -0.6%, Nasdaq -0.9% and Russell 2000 -1.4%. Asian markets are mixed as the tech sector is dragging down most indices. Chinese indices are mostly higher as property developers are rising on the back of the last batch of policy support. Futures in US and Europe are mixed this morning with the tech-heavy indices trailing the rest.

FI: There was a modest decline in global bond yields yesterday, where 10Y US Treasury yields declined 3-4bp relative to the opening level on Tuesday morning. 10Y German govt yield also declined 4-5bp. There was also a bullish steepener between 2Y and 10Y for both the US and European government bond yield curves.

FX: SEK gained for the second straight day versus the rest of the G10 closely followed by the EUR, NZD and AUD. CAD and USD lost some ground yesterday, with EUR/USD rising to a two-week high just below 1.0840.