The euro fell slightly against the USD yesterday. The S&P500 reached new record closing highs, while the Euro stoxx closed marginally down. Brent oil price fell.
There were some mixed messages of a third Greek bailout yesterday, with the Spanish minister saying a new bailout being discussed, and Eurogroup spokeswoman saying no talks under way.
The yield on US 10Y treasuries were up yesterday after mildly disappointing US consumer spending figures for January, and the FebruaryUS ISM manufacturing report, showing the index hit a 13-month low. We continue to believe that Friday’s jobs report could still be decisive for whether the Fed drops its key “patient” language at the 17-18 March FOMC meeting, a move which would open the door for a rate hike at any subsequent meeting.
In Europe, the Euro-area HICP showed a negative inflation rate for the third time in a row in February. The drop in prices (-0.3% y/y) was, however, slower than in January, giving hopes of the monetary union being able to avoid a much-feared deflation spiral. This positive surprise will not affect the ECB’s QE programme, which is scheduled to begin this month.
Finnish GDP declined in Q4 by 0.2% both q/q and y/y. All GDP components except public consumption fell from the previous quarter. The starting point for 2015 is weak.
In Sweden, the manufacturing PMI moderated to 53.3 in February, down from the rather strong prints in previous months. Notably, the sub-index for export orders fell to its lowest level since December 2012.
Day ahead
The calendar today is relatively empty, with no major events scheduled.
Germany will publish retail sales for January. We forecast an increase of 0.5% m/m, slightly above the consensus. The numbers are highly volatile. Whatever the actual outcome, conditions for robust growth in private consumption remain in place.
In Sweden, the Q4 current account balance will be published, and in Denmark we will get data on February’s level of foreign currency reserves.
Rates
QE anticipatory pricing advancing further with for example Italian 10-yields at a renewed low to just 1.4%. Nobody wants to be short duration going into the purchases and for instance the tailing off of the 10-year Portuguese yield was the first “non-drop” date in three weeks. With the core German yield largely anchored (retreating 1 bp to 32 bp yesterday), spreads are thus still tightening.
The QE programmes already in play – the ABSPP and CBPP3 – amounted to EUR 470m and EUR 2.47bn, respectively, for the week spanning 20 to 27 February according to data from the ECB yesterday.
Given the strong (given the expectations) inflation numbers last week, it was no surprise that yesterday’s Euro-zone flash estimate came in above the survey number. -0.3% was thus a move forward on the headline number whereas the core rate held steady at +0.6%. Short inflation swaps soared on both this and a basis change and the 1Y swap now sees light above zero for the first time since early December.
The US 10-year Treasury yield’s dance with 2% continues, and yesterday it again moved above this level. On the more immediate horizon the 1Y1Y swap trades just below 1.30% and the market continues to imply a rate hike around September-October. Our economist’s call here is in line with September.
FX
EUR/USD defended the important 1.12 level yesterday as the EUR gained on better inflation and PMI figures. EUR/USD may still want to target the 2015 lows at 1.1098, but we are unlikely to see decisive action before the ECB meeting this Thursday or the US payrolls on Friday. It seems now the USD side is more important. There is still a chance that the actual start of the ECB’s QE (some time by mid-March) and Draghi’s acknowledgement of better data will be EUR-positive.
The SEK followed the EUR stronger yesterday, despite the manufacturing PMI coming out lower than surveyed. A sign of the short positions exhausted? If the ECB gives some positive reaction on the EUR, we would very likely see EUR/SEK lower: next stop around 9.27. However, the Riksbank will remain a risk, especially if our call for an April rate cut proves right.
The NOK was barely changed yesterday, as the market is awaiting the oil investment survey (5 March) and the regional network survey (6 March), which will be key for Norges Bank’s decision: the market prices in a cut, thus at least stabilisation is needed to bring NOK support. For oil prices, a further increase is needed to bring the NOK stronger, which we are not getting just yet.
The AUD is a proxy for China, and with some stabilisation in the housing market and further easing, the last year’s headwinds are dissipating. Also, domestic data from Australia has turned more positive, and thus the two cuts priced in are not justified. AUD/USD remains a buy on dips after the RBA decision this morning, where the RBA held policy steady.
Nordea