Eye-Opener: More wasting of time in Greece, jump in Chinese CPI, lower yields

Euro-area yields saw big declines yesterday, as the ECB finally started buying (e.g. the German 10-year yield fell by 8 bp). The EUR/USD, in turn, has continued to tumble, and has plummeted below 1.08 this morning. European equities retreated some, while US equities posted modest gains (S&P 500 up by 0.39%).

Yesterday’s Eurogroup meeting did not really make progress on Greece. It concluded the discussions between Greece and the three institutions, the IMF, Commission and the ECB, would begin on Wednesday. Eurogroup head Dijsselbloem said the key issue now was to stop wasting time and make some real progress. The recent course of events resembles a comedy, but in reality illustrates that the two sides continue to have major disagreements, ones that can still lead to a collapse in the talks. Even though the funding situation of Greece is tight, the country is likely to be able to find the money to cover the next IMF loan repayment later this week.

The ECB’s Cœuré warned that the Euro area was not able to create trust, if even the new budgetary rules were already being unraveled. It is easy to agree with his comments, and see, why the ECB would be frustrated over the matter. Unfortunately, it looks clear not even the new rules carry that much credibility, as there have been so many breaches without consequences in the past, which is a notable dent for the longer-term outlook of the Euro area.

Chinese CPI numbers jumped more than expected (but the drop in the PPI accelerated), from 0.8% y/y to 1.4%. The numbers follow higher-than-expected inflation from the Euro area, and suggest recent deflation fears are overblown. However, we would not read too much into the numbers because of the effects from the Chinese Lunar New Year holiday.

Day and week ahead

From the minor end of US data that normally attract attention, we get the Job Opening and Labor Turnover Survey (JOLTS) and the NFIB small business survey today. Last month the JOLTS report showed the most job openings since 2001. In the NFIB, we will especially focus on the net percentage of firms reporting an increase in labour compensation and the net share reporting few or no qualified applicants for job openings. Historically both indices have tended to be good leading indicators of wage growth.

Core inflation for February is the last important release before Norges Bank finishes its March interest rate forecast. One could argue that the significant weakening of the NOK towards the end of 2014 suggests an upward revision compared with the December inflation forecast, but we believe it is too early for that. We forecast February core inflation at 2.4% y/y, unchanged from January. With core inflation at 2.4% or 2.5%, Norges Bank will conclude that inflation has been as expected.


The ECB finally started its bond purchases yesterday, pushing long German yields clearly lower. The 10-year yield ended the day lower by around 8 bp, while the curve bull-flattened and inflation expectations fell. In the bigger picture, the German 10-year yield remains in a rather tight range, and profit-taking could easily drive the yield higher in the coming days.

Despite the ECB’s purchases, intra-Euro-area spreads narrowed only in the semi-core space. Spanish and Italian 10-year spreads versus Germany actually widened by around 5-6 bp.

Greek yields jumped, with the 10-year yield climbing more than 60 bp following renewed uncertainty over programme negotiations and how the Greek financing gap could be filled over the weekend. Still, the yield remains clearly below the highs seen last month.

The US 10-year yield fell back to around 2.20%, but this offset less than half of Friday’s jump. After the clear rebound higher in yields since early February, the higher levels are likely to attract some buying interest again.

In bond issuance, the US will offer 3-year notes, while Germany and the Netherlands will be active in the Euro area.


Yesterday move higher in EUR/USD proved short-lived, and the cross has fallen again this morning. The ECB commenced buying assets, but this should largely be in the price by now. A more interesting question might be how much money the Fed needs to “unprint” at lift-off. On the downside for the pair there’s a weekly low of 1.0765 from 2003, below which the market can aim for parity.

The SEK was fairly steady yesterday, despite stronger Swedish data. The SEK is currently a bit stronger than the Riksbank expected in February, which together with recent rate developments should hold the SEK back. While markets may fret about ECB QE weighing on the cross, we take a somewhat sceptical view given that markets have had ample time to adjust to the prospects of ECB QE.

The NOK came under small pressure yesterday as oil prices eased somewhat. Barring macro surprises, the NOK continues to trade in line with the oil price. Today’s main event is the Norwegian CPI-ATE number, which we forecast won’t impact the outlook for Norges Bank. On the downside, EUR/NOK should be supported around 8.50, which coincides with the 200 DMA, below which 8.40 is the next level. Oil prices and economic surprise indices overall suggest further NOK/SEK downside.