European markets shuddered after Greece’s Prime Minister Tsipras on Sunday reaffirmed his rejection of the nation’s bailout programme, putting Greece firmly on a collision course with its European partners ahead of tomorrow’s emergency meeting of EU finance ministers to discuss the country’s financing needs.
Chinese CPI this morning came in at 0.8% y/y against a consensus expectation of 1.0%. The PPI also came in below expectations at -4.3% y/y. The market thinks as it has become accustomed: That calls for more stimulus and consequently Chinese stocks are up in overnight trading.
Another day with high tension in Denmark. In just three weeks the Danish central bank, Nationalbanken, has managed 4 rate cuts (70bps in total) and supply-side QE. They have managed to make the cost of carry in Danish assets high, but the pressures from speculators and hedgers remain in place. For a closer look at what’s going on.
Day ahead
Today’s calendar includes inflation numbers for Norway and industrial production prints for France and the UK as well as the US NFIB small business survey and the US JOLTS report on the labour market. The ECB’s Praet and Costa speak on financial stability in Lisbon and we will also keep an eye on the Fed’s Lacker speaking on the US economy.
In Norway we forecast a decline in core CPI inflation from 2.4% in December to 2.3% in January. If we are right, little will happen in the market. But the uncertainty is high.
The US JOLTS report and the NFIB small business survey have both tended to be good leading indicators of wage growth in the past.Both will be scrutinised for signs of further tightening of the labour market. The hope here is that inflationary pressure is bubbling just beneath the surface.
Rates
Tsipras went the other way again yesterday. After last week’s softening, yesterday the Greek prime minister re-hardened his lineregarding Greece getting significant softer austerity demands. This caused risk sentiment to shift again, and Bunds performed so that the 10-year rate again got below 0.35% before closing just above.
Peripheral spreads widened substantially. Italian yields widened 10 bp against Germany in the 10-year point, as did Spanish bonds. The Italian 10 year spread is in 1.30%, 20bps higher than when the ECB announced QE on January 22nd.
So far there have been unconfirmed rumors in the market about details on ECB QE being announced next week. If true, the market will scan for distribution across maturity buckets and percentages put into linkers. Of perhaps particular interest is the 30-year yield. The 30-year German yield is again below 0.95% and has been driven so low in part due to Draghi’s 22 January statement on the ECB buying between 2-year and 30-year maturities.
US yields reverted a bit after Friday’s sell-off after the non-farm payrolls release. 10-year Treasuries dropped 3 bp to around 1.93%.
FX
The EUR experienced a choppy session yesterday as markets once more had to digest what seems to be an escalation of the rhetoric between the new government in Greece and its creditors. The USD could see some further tailwinds today if the JOLTS report or the NFIB index supports the market’s thesis of a strengthening US labour market. We do think that all things equal, inflation are of greater importance for the USD’s overall trajectory, however.
The main Scandi event today is Norwegian inflation, which could impact the market’s perception of Norges Bank’s March meeting if it surprises (which we do not foresee). The NOK became very cheap in December and probably needs positive inflation surprises to keep gaining in the near term.
As for the SEK, the market is pricing in a very soft Riksbank. Near-term market developments are more likely to be driven by positioning adjustments than anything else. The “normal” pattern of the SEK is that it is weakens or stays weak into the Riksbank meeting (on Thursday), but that it may appreciate somewhat afterwards. This should apply doubly this time around given a market rife with QE and negative repo rate speculation
Nordea