The Euro area grew 0.3% q/q in Q4 and hence surprised slightly on the upside mainly because of stronger than expected growth in Germany. Growth for 2014 as a whole was 0.9%, underlining that the pace of growth is slowly increasing.
We changed our forecast for the Riksbank and the SEK on Friday. Read SEK: Pandora’s monetary toolbox prompts changed forecastsand Sweden: Inflation targeting above all for more details.
Japanese GDP rose 2,2% annualized, and therefore expanded less than economist estimates in fourth quarter (3,7%).
Day and week ahead
The most important event in the week ahead is the minutes of the 27-28 January FOMC meeting to be released Wednesday. This meeting pre-dates the blockbuster January jobs report, but the minutes of the meeting are still likely to point to a mid-year lift-off in rates.
Euro-area PMIs Friday will be the first indication of how much confidence has improved following the ECB’s QE announcement. We expect a modest improvement.
Wednesday will be a big day. Apart from the FOMC minutes, the minutes of the 4-5 February MPC meeting at the Bank of England will be also released, and the Policy Board of the Bank of Japan will meet, though we expect no new easing measures at this point.
Swedish inflation will obviously be in focus tomorrow following the Riksbank’s surprise move last week. We expect a temporary dip in January due to the drop in oil prices.
There are no major key figures in the calendar for today.
The main event will be the Eurogroup meeting, which has been marked as a deadline for a preliminary agreement on the continuity of the Greek adjustment program. Failure to reach an agreement today will just push the deadline further into the future.
Rates
Investors seem to be moving away from expecting a default scenario in Greece. As such Greek yields continued and indeed increased the massive tightening from yesterday.
The 3Y yields ended Friday at 15.07% declining 233 bp on the day. To put Friday’s yield level into context just take a look at the level a week ago last Monday when it reached 21,2%. Depending on how negations fall out this week, we do expect continued volatility.
In Sweden the QE actions from the Riksbank continued to be felt with rates continuing to decline, but at a slower pace. Rates fell by 5-6 bp. With slight rate increases in Norway on a day with no significant data, the question arises what the market is expecting here, or if we are starting to see some sort of Nordic spill-over?
In the Eurozone we saw a classic case of the periphery declining, and core/ semi-core rising in the wake of continued massive declines in Greece, and quite possibly a Ukraine deal. As such the moves were small (from -2 bp to +10 bp) when comparing with the movements in Greece.
US rates rose slightly with the 10Y back above 2% (2.05%).
Euro rose only slightly, with US 10Y swap rates up 6bp.
FX
The USD is stuck between a rock and a hard place. US data have been awful versus expectations, but the Fed is intent on hiking rates fairly soon. The EUR on the other hand is feeling some tailwinds due to positively surprising macro readings. We see the pair range-bound between 1.13 and 1.15.
SEK: Swedish CPI (17 February 17) and inflation expectations (18 February) will be crucial for the krona this week after the Riksbank recently declared war on disinflation pressures. January CPI is always tricky to forecast, and probably even tougher than usual given the recent moves in the FX market. We share the Riksbank’s view of the CPI. The inflation expectations reading may see a slight bounce which, if realized, could lead to some paring back of Riksbank rate cutting hopes, which would prompt a stronger SEK temporarily. Given the clear and present danger for further Riksbank easing, the SEK is a sell on rallies in the short term.
NOK: Norwegian rates came under pressure after the Riksbank’s decision to go NIRP. Oil prices keep gaining, however, removing downside risks to the Norwegian economy. Norges Bank will probably try to eventually restrain the krona from strengthening too much, but not here and not today. 8.58 is the next important level on the downside in EUR/NOK.
Nordea