Flash inflation to set the tone ahead to Euro area data next week

In focus today

In the US, January PPI data will be released this afternoon. The earlier CPI release landed slightly below expectations.

In the euro area, February's flash inflation data from France, Germany, and Spain will give important hints ahead of next week's euro area inflation release. We expect euro area HICP inflation to rise marginally from 1.69% y/y to 1.73% y/y, remaining at 1.7% y/y when rounded. Core inflation is expected to remain at 2.2% y/y. Energy inflation is expected to rise due to lagged effects of January's energy price and higher fuel prices in February, which is the main reason we expect a small rise in the headline at the second decimal. Monthly momentum in services inflation will be crucial, given its notable weakness in January.

In Norway, the last couple of months' NAV figures show that unemployment is falling again, which is a bit surprising given the moderate growth, the slowdown in employment growth, and the decline in vacancies. We expect that the unemployment rate (SA) will be unchanged at 2.1% in January. Finally, we suspect that the weak retail sales figures for December are partly due to problems with seasonal adjustment in connection with Black week. Hence, we expect retail sales to have increased by 0.7% m/m s.a. in January.

In Sweden, we will get the final GDP release for the fourth quarter. We expect GDP to grow by 0.4% q/q and 2.2% y/y. This is slightly stronger than the GDP indicator but is in line with production data, which showed positive signals. Monthly data for consumption indicates that the recovery is underway and has looked noticeably better since the second quarter of last year. We are also keeping an eye out for potential revisions to the third quarter. The most important factor for the Riksbank is domestic demand, particularly how consumption develops.

Economic and market news

What happened overnight

In Japan, Tokyo inflation (a good indicator of the country total) slowed in February, with CPI excl. fresh food at 1.8% y/y, down from 2.0% y/y in January. This marks the first time in 16 months that inflation has fallen below the Bank of Japan's 2% target. The decline was driven by the impact of fuel subsidies and the removal of gasoline tax surcharges, while the effects of recent food price hikes have largely subsided.

What happened yesterday

In US-Iran talks, 'significant progress' was reportedly made in Geneva on Tehran's nuclear programme, with technical negotiations set to resume on Monday in Vienna. According to the Wall Street Journal, the US has outlined key demands, including dismantling key nuclear sites, signing a permanent agreement, and transferring Iran's enriched uranium stockpile to the US. While the US has shown some openness to limited enrichment for medical purposes, this could still leave the door open for Iran to quite easily continue enrichment to weapons grade levels. With diplomacy still on the table, concrete results remain elusive, leaving crude markets in a wait-and-see mode and continuing to price in a significant risk of military escalation.

In Sweden, February's NIER Economic Tendency Survey showed weaker sentiment, with the Economic Tendency Indicator at 100.1 (prior: 102.8). Manufacturing confidence fell to 97.7 (prior: 103.4), while consumer confidence rose slightly to 96.3 (prior: 95.3). Sentiment now aligns with our GDP forecast, reducing the recent upside risks. For the Riksbank, the survey was relatively neutral. Price plans in the service sector remain elevated, but food price plans signal a decline, reflecting willingness to adjust prices ahead of April's VAT reduction.

In Denmark, PM Mette Frederiksen has announced parliamentary elections will be held on 24 March. Among other things, her party is running on introducing a new wealth tax to fund increasing spending on primary schools and a cut in property taxes on lowest valued homes. Denmark was set to hold elections in the autumn, but the government has the option of calling for earlier elections.

Equities: Global equities declined 0.3% yesterday. S&P500 declined 0.5%, while Nasdaq was down 1.2% and Russell2000 was up 0.5%. Stoxx600 was virtually unchanged. The slide was heavily concentrated in AI/tech exposed companies, with tech down 1.8%. In fact, it was only 30% of the S&P500 names that ended lower yesterday. Nvidia ended 5.5% lower, amid their report on Wednesday night showing strong sales, but AI implications investor concerns continue to linger, and when such a large company declines by more than 5%, it is hard for the rest of the market not to notice. Firms within the private equity/credit space suffered markedly following an Apollo private credit fund marked down its value of the assets and cut dividends, identifying the recent turmoil around private credit/equity names. Overnight, Asian stocks are generally positive with US futures in red.

FI and FX: Talks between Iran and the US have been described as constructive, although no concrete results have been announced. EUR/USD continues to trade near the 1.18 level, while EUR/SEK remains below 10.70. EUR/NOK has been range-bound between 11.20 and 11.35 over the past two weeks.

Rates have rallied in most markets in recent days. In the US, the 10y Treasury yield is trading at 4.0% this morning, while the 10y gilt yield has fallen to 4.27%, its lowest level since late 2024. EUR swap rates have also drifted lower, and today's preliminary inflation data from France, Spain and Germany could put additional downward pressure on yields if the figures surprise to the downside.