Good morning,
Last week was the first this year, where 10-year Treasury yields did not fall (they rose by five bp to 2.69%, while Bunds were flat over the week), and only the second week that saw the S&P 500 advancing. The US jobs report, a mixed bag (as Johnny’s wrote in his comment:https://nexus.nordea.com/#/article/2819), was largely shrugged off by markets, also in Asia overnight. For the Fed, the bar for slowing the taper seems quite high. There is still another jobs report to go before the next FOMC meeting. A solid report will likely entrench the Fed’s commitment to the current policy path.
“Some banks have no future”
Turning to Europe, Danlièle Nouy, the euro area’s new chief banking regulator said in an interview with the FT over the weekend: “We have to accept that some banks have no future”, referring to the upcoming asset quality review and stress test. So she, like Draghi before her, tries to get the message across that the health check will not be easy-going.
On the agenda this week: Yellen, Euro area GDP
Second-tier economic data from the US this week. On Tuesday, incoming Fed Chair Janet Yellen will testifiy to the House on the economy and monetary policy. We expect her to stick to the current tapering agenda, while highlighting that the first rate hike is still a long way off.
Euro area: The ECB will publish the latest Survey of Professional Forecasters (and the monthly report) on Thursday. The question will be whether inflation expectations are still well anchored. The data highlight will be Q4 GDP numbers on Friday, where we expect a 0.3% q/q increase. We will also have December industrial production numbers from France, Italy (both today), and the Euro area.
The future of forward guidance
Wednesday’s release of the Bank of England inflation report will be a watched carefully. Governor Carney has hinted that forward guidance will be discussed, especially since the unemployment forecast will have to be revised down significantly again. His recent comments could suggest that a broader range of variables will be used to determine the timing of the first rate hike.
Supply
No primary market activity scheduled for today. The Netherlands, Germany and Italy will be active from Tuesday on.
Have a successful week.
Nordea