The developments in Russia/Ukraine as well as in Greece kept dominating the news flow yesterday. The White House said that US President Barack Obama had called Vladimir Putin to discuss the crisis in eastern Ukraine and the coming meeting in Minsk.
As a pre-warming, before finance ministers of the Eurogroup meet today, Jack Lew, the US Treasury secretary put some pressure on both sides urging them to be “practical and pragmatic” when getting together and finding a solution.
John Williams, president of the San Francisco Fed, yesterday said that the US central bank is getting “closer and closer” to a first rate hike after positive signs that wages are picking up and that hiring has been strong.
The US JOLTS report and the NFIB small business survey gave further support to the case for lift-off in Fed rates around mid-year. Although we recently postponed the expected first Fed rate hike from June to September, we now see an almost 50% chance of lift-off as early as in June.
In Norway, core inflation came in a bit higher than we had expected at 2.4%. However, that will probably not be enough to prevent a rate cut in March.
Day ahead
Eurogroup finance ministers will today discuss how to proceed with financial support for Greece at a special session in preparation for talks among European Union leaders on the issue tomorrow. We have low expectations that any final agreements will be reached this week. Greece still plans to reject some of the strictest austerity conditions, and the brinkmanship between Greece and its international creditors has been rattling markets for days.
In Norway, we expect Q4 mainland GDP to have expanded 0.4% q/q (2.6% y/y), similar to the pace in Q3 and in line with the consensus forecast. Norges Bank’s forecast is 0.35% q/q. If we are right, little will happen in the market.
Otherwise, there are no notable data releases or events in Asia or Europe. In the US, Dallas Fed President Fisher is due to speak.
Rates
Financial diplomacy between Greece and its creditors is still the driving force in euro rate markets this week. The German 10-year government bond yield moved higher during yesterday’s trading session but fell back before market close and ended the day unchanged at 0.37%.
The 10-year US Treasury yield traded above 2% for the first time since early January after the JOLTS report and the NFIB survey were on the strong side.
In Scandi markets, all eyes are on Thursday’s Riksbank meeting, where roughly 25-30% probability is priced in for a 25 bps cut. Stibor 3M fixed higher yesterday after reaching an all-time low last Friday at 0.047%. For more thoughts ahead of the Riksbank meeting and the Swedish market.
FX
The EUR/USD cross was barely changed yesterday. The market seems to get somewhat oblivious to the headlines on Greece, as the Greek stock market has stabilised and the 10-year government yield stopped rising. It is unlikely that we will see big moves until for example the Fed signals an earlier hike or negotiations between Greece and international creditors stall.
The NOK was helped a bit by steadying oil prices and slightly stronger inflation figures than Norges Bank had projected. More than one rate cut by Norges Bank should not materialise (the next meeting on 19 March), giving further support to the NOK. Today’s GDP figures are important to underpin the view.
The SEK has gained a bit during the latest trading session, maybe a sign of profit-taking ahead of the Riksbank meeting on Thursday.
The JPY was among the losers yesterday, as the global long maturity yields kept creeping higher. For example the US 10-year yield, the key driver for USD/JPY, has reached 2% again. A continuation of this trend should mean that we will see a weaker JPY, in line with our official forecast.
Nordea