Market movers today
Today, we have an indicative Brexit vote on the way forward, which is unlikely to be that important anymore given PM Theresa May's promise to hold three votes on 12-14 March (on a Brexit deal, a no deal and an extension of Article 50, respectively). While we have talked a lot about the Cooper amendment recently, it may be pulled if the MPs have faith in May's promise. The votes in March are likely to be much more important at this point.
In Norway, retail sales and the unemployment rate are due out and in Sweden a lot of confidence indicators are due out. See page 2 for more information.
In Europe, consumer and business confidence indicators for February are due and we will look for any signs of whether the European economies are rebounding soon or not.
In the US, Fed Chair Powell's two-day hearing continues but it is unlikely to move the markets.
Selected market news
Asian equities are up 0.4% this morning as Trump seems upbeat about the meeting with Kim Jong-un as well as hinting on a series of trade deals between the US and Vietnam, thus showing the willingness of the American administration to continue striking deals and showing positive signs for the ongoing US-China trade talks.
US equities (S&P500 -0.08%), meanwhile, seemed to have a hard time decoding Fed Chair Powell's testimony to the US Congress. Powell told Congress that the US economy faces 'cross currents and conflicting signals'. Powell also said that the US economy grew at a 'strong pace' last year, but acknowledged that the start to 2019 would imply a more data-dependent US monetary policy, as both inflation and employment seem to be in line with the Fed's dual mandate. Nothing much was new in terms of the current balance sheet roll-off and Powell continues to insist that the Fed can remain flexible on this matter. We expect the Fed at the March meeting to announce plans to end further balance sheet normalisation by the end of this year (see more in the FX Edge link under 'selected readings'). US treasury yields are down 3bp across the curve.
Oil prices has stabilised somewhat, Brent Crude +0.7%, after sources said that US crude oil inventories (to be disclosed today) will show a drop of some 4.2m barrels compared to a median estimated forecast of +3m barrels, and Russia saying that it follows a previous agreement with OPEC to lower production by having cut production by 140,000 barrels per day since December. Markets seem to put great emphasis on the fundamental ongoing supply constraints following in part the Venezuelan crisis. Oil prices were down 3% in Monday's trading session following Trump's comments that 'oil prices are getting too high' and that 'OPEC should relax'.
Scandi markets
In Sweden, Q4 18 GDP data is due out tomorrow. As an appetiser, today offers a batch of macro figures worth paying attention to. We expect the NIER confidence to weaken further, especially manufacturing. The sharp drop in consumer confidence may seem exaggerated, but suggests more cautious households amid a slowing housing market. On that note, Statistics Sweden releases household lending data at 09:30, which is likely to continue to moderate. We estimate a slight rebound in trade balance in January (09:30), but we also like to stress that the bigger picture, which we have pointed out many times, is that while the krona has depreciated a lot over the past few years, we have seen a trend of deterioration of the trade balance in goods, which is now in negative territory.
In Norway, retail sales recorded a fall of 1.8% m/m in December. We would normally have expected a significant correction in retail sales in January, but we expect a below-consensus rebound of 0.3% m/m. The main reason is the disappointing inflation figures for January, pointing to weak demand. Employment is continuing to rise rapidly, but a growing labour supply is stopping unemployment from falling as quickly as it has been for the past couple of years. Therefore, we expect the LFS unemployment for December at 3.8%.
Fixed income markets
The rally in the peripheral government bond market continued yesterday after data showed good interest at the Spanish 15Y syndicated sale yesterday – it sold EUR5bn and the order book was EUR44bn. The 10Y Italy/Germany spread tightened some 7-8bp and approaches 250bp, which has proven to be a strong resistance. Today, Italy will sell up to EUR4bn in a new 10Y as well as up to EUR2bn in a 5Y and 1.25bn in a 7Y floater.
Today, Norway will sell in the new 10Y bond. The initial price talk (IPT) is ms-25bp, which is in line with expectations. Germany will tap in the 10Y segment. The Bund spread has continued to tighten given new issuance and is now at 54bp. We are approaching our expected lower bound of 50bp, where we recommend going long the Bund spread.
FX markets
EUR/USD lifted yesterday on rising hopes of a averting a no-deal Brexit and as Fed’s Powell reiterated the need to be reactive to economic and financial conditions. The likelihood of a postponement of the deadline for Brexit and/or a trade deal remain EUR positives near term; both would be significant developments in lifting some of the political risks that have been weighing on the single currency for a long time. We continue to target EUR/USD at 1.15 in 1-3M.
GBP gained further yesterday and EUR/GBP fell below 0.86 as Theresa May promised that the UK will not leave the EU without a deal unless parliament approves such an event. The risk of a ‘no deal’ Brexit appears to have declined significantly after both Theresa May and opposition leader Jeremy Corbyn have made significant climb-downs, and the change in the Brexit outlook justifies a level shift lower in EUR/GBP, in our view.
The SEK has traded somewhat sideways for the past couple of days, which have been rather calm on the macro front. Today, however, offers a batch of interesting macro data (see Scandi section). The main potential market mover is the NIER confidence survey, where especially consumer confidence has dropped sharply over the last prints, while manufacturing has held up surprisingly well. If the survey indicates further weakness to the Swedish economy, we might once again establish the cross above 10.60, as the trend remains against the krona.
