In focus today
Today, focus is on German ZEW data for January and final inflation figures for December. The final HICP figures include details on inflation components that will provide important information about the underlying inflationary pressure in the largest euro area economy.
While the official labour force statistics continue to be postponed, today we get the experimental estimates for November/December at 8:00 CET. Key will be developments in wage growth, which is highly determining of service inflation. Other surveys point to a further easing in wage growth although the loosening of the labour market appears to lose steam.
In Norway November GDP numbers for the mainland is released at 08:00 CET. We expect the number to come in at -0.2% m/m.
Fed’s Waller speaks at 17:00 CET.
In the US, markets will resume trading after being closed for Martin Luther King Day on Monday.
Early Wednesday morning (03:00 CET) China releases GDP on top of the monthly batch of data. GDP growth is expected to be 1.0% q/q down from 1.3% q/q in Q4 which would result in a rise in the annual growth rate from 4.9% to 5.2%. It would imply an average growth rate for the year at 5.2% and thus above the government’s 5% target. More interesting will be Chinese data on home sales and retail sales. Home sales are still very depressed leaving no sign of a bottom in the housing crisis. Retail sales have been solid in November growing 10.1% y/y but expected by consensus to drop to around 8%. It is crucial that consumption growth stays afloat for China to continue a growth path around 5% in 2024.
Economic and market news
What happened overnight
In the US, former president Donald Trump expectedly won the Iowa caucus, thus bringing him one step closer to getting on the Republican ticket for the presidential election this November. The Trump victory was highly anticipated in prediction markets. Ron DeSantis came second narrowly ahead of Nikki Haley. Third runner-up Vivek Ramaswamy chose to withdraw from the primaries and endorse Trump, thus giving the former president even more support in his endeavours to secure the Republican nomination.
In Asia, Japanese wholesale inflation for December came out higher than expected at 0.3% m/m and 0.0% y/y. Consensus was expecting it to land at 0.0% m/m and -0.3% y/y. The surprise in the corporate goods inflation comes ahead of Friday’s nationwide Japanese December CPI release.
Swedish unemployment increased from 6.5% in November to 6.7% in December according to new data released by the Swedish Public Employment Service (SPES) this morning. This number can be compared to an unemployment rate of 6.6% back in December 2022 and shows that the unemployment is remaining at stable and relatively low levels. Danske Bank expects a modest increase in Swedish unemployment during 2024.
What happened yesterday
In Sweden, inflation surprised to the upside with the nominal CPIF coming in at 2.3% and CPIF ex energy coming in at 5.3%, both y/y. Clothing and furniture appeared to be the primary causes behind the upside surprise, both rising much more than expected. Despite the higher than expected December print, inflation remains below the most recent Riksbank forecast.
German GDP numbers showed the economy shrank by 0.3% in 2023. The preliminary GDP numbers (official quarterly data are released in two weeks) for the Q4 came in at -0.3% q/q, whereas Q3 was revised up from -0.1% q/q to 0.0% q/q. The manufacturing sector has weighed increasingly heavy on the economy in Q4 according to IFO data and the construction sector has continued its increasingly steeper slide into recession.
Manufacturing recession: In the euro area, weak soft data also translates into weak hard data with industrial production down 0.3% m/m in November as expected. This compares to a decline in October of 0.7% m/m.
ECB: At the World Economic Forum in Davos, Robert Holzmann, hawkish member of the ECB Governing Council, made it clear he deemed it prematurely to speak of rate cuts, saying he “may even foresee no cut at all this year”.
In energy markets the Dutch natural gas benchmark the TTF, widely recognised as the most prominent natural gas benchmark in Europe, dropped below €30/MWh due to EU natural gas storages sitting at around 80%. This storage level is close to a record-high for this time of year, albeit slightly lower than the corresponding level in 2023, hence market sentiment has begun leaning towards Europe making it rather comfortably through the winter despite cold weather. By session end the TTF stood at €30.5/MWh.
Red Sea: The on-going conflict between the Iran-backed Houthis and the US led naval contingent in the Red Sea is still at the centre of attention in crude markets. A US owned dry bulk carrier ship was hit by a missile off Yemen. The Houthi movement responsible for the attack followed up with a statement saying they would now target all American ships. Several oil tankers diverted routes to avoid the Red Sea. QatarEnergy announced they would also seize passing through the Red Sea. Despite the continued tension in the Red Sea oil retracted slightly in yesterday’s trading session, with Brent settling at USD78.15/barrel.
Equities: Global equities were mostly lower yesterday with US closed for Martin Luther King Day. Sentiment kept sliding throughout the day and the appetite for risk continues to drop this morning in Asian and western futures. No big sector or style rotation but rather a broad-based sell-off with energy sector doing marginally better than the rest. Japan stood out yesterday as well and is 5% ahead of other markets year-to-date as yen has weakened on the back of a dovish turn in central bank expectations.
FI: Yields rose across the board on the first trading session of the week, reversing some of the decline last Friday. 10Y UST yields ended 6bp higher, while 10Y Bund yields rose 5bp. The pricing of rate cuts from the ECB in 2024 fell from 156bp to 150bp during the session. The Bund ASW-spread continued to tighten, while peripheral spreads were slightly wider. Overnight, oil prices have gained some tailwinds on the back of yesterday’s Houthi attack on a US-owned commercial vessel in the Red Sea.
FX: The week has started relatively quietly in the G10 FX space with the US market closed yesterday. EUR/USD remains in the mid 1.09-1.10 range, while the JPY traded weak, driving USD/JPY above 145 and EUR/JPY closer to 160. EUR/GBP hovers around 0.86. In the Scandies space, both EUR/NOK and EUR/SEK drifted above 11.30.
