Over the week-end, Greek ministers have floated the prospect of a referendum if their new reform proposals will be rejected. Time for Greece is running short, but the country has at least until April.
Strong payrolls numbers (+295k) sent the EUR lower and US rates higher on Friday. Despite the weaker-than-expected hourly earnings, we think the jobs report leaves the Fed on track for a mid-year rate hike, with a removal of the key “patient” phrase either in March or in April. We continue to see the odds of lift-off in June or September (our baseline) as roughly equal.
Day and week ahead
The ECB’s QE starts today – by coincidence exactly six years after the equity market rally started in 2009. Also today, the Eurogroup will meet to discuss the next steps following the decision to extend the financial assistance to Greece. There were reports out saying that Greece needs fresh money very soon.
The news flow on the data side will be very thin today (see calendar). Otherwise this week, we get a lot of second-tier data from the US with retail sales on Thursday being the most interesting release. We expect a solid increase in sales.
In the Nordics, the focus will be on inflation and so indirectly on the central banks. Norwegian February inflation numbers are out on Tuesday and the Prospera report on inflation expectations in Sweden as well as inflation numbers on Wednesday.
Rates
The German 10-year yield fell early on Friday, and German bonds showed resilience to the positive US payrolls, indicating the weakened relationship between US and German yields. However, higher US yields finally lifted German yields as well, and the 10-year yield ended the day up by some 4 bp. The inability of the ECB’s bond purchases to push yields much lower today could lead to some profit-taking and somewhat higher yields.
Intra-Euro-area bond spreads narrowed across the board ahead of the start of the ECB’s sovereign QE programme today. Spanish and Italian 10-year spreads versus Germany have fallen to less than 100 bp already.
The US 10-year yield jumped on the positive payrolls report, and rose above 2.20%, to the highest level seen this year. The yield finally ended the day higher by a sizable 12 bp. Yields should have more upside potential left.
This week’s issuance calendar looks crowded. In the US, it will be longer-term issuance week, meaning 3-year notes tomorrow, 10-year notes on Wednesday and 30-year bonds on Thursday. In the Euro area, the Netherlands will sell bonds tomorrow, Germany tomorrow and on Wednesday and Spain, Italy and Ireland on Thursday.
FX
EUR/USD got hit again by the better US payrolls headline on Friday. The ECB QE programme starts today, so it will be interesting to see if the “buy on rumour, sell on fact”-pattern applies for EUR/USD this time around. On the downside there is support at a weekly low of 1.0765 from 2003; if broken, a move towards parity is likely. The normal pattern ahead of Fed rate hike cycles since the 90s is for the USD to appreciate until the first hikes.
The SEK saw some headwinds on Friday as Riksbank Dep. Gov. Jansson expressed hope that the recent “krona strengthening” will stop. After the Riksbank’s very strong guidance in February, it could be that it needs to launch further stimulus to prevent the SEK from gaining further. A tick lower in this week’s inflation expectations could re-ignite Riksbank stimulus hopes (& fears), which would push the SEK in a weaker direction
The NOK was hit hard Friday, both by the weak industrial data and Norges Bank’s regional network survey, but also by the higher USD yields. Brent oil prices are still stuck around USD 60/bbl – not good enough to support the NOK further.