Investor focus remains on US data and Trump

In focus today

The Sentix indicator will give us the first indication of European investor confidence in February.

In Denmark, inflation data for January is released. January data is always extra exciting because many businesses only adjust prices at the turn of the year. Sales also increases uncertainty. Particularly fuel prices have increased due to higher energy fees but also higher oil prices. Even so, we expect a decline in annual inflation to 1.5% from 1.9% in December, driven by particularly electricity, as a big increase in tariffs and fees in January 2024 exits the inflation measure.

In Norway, January inflation figures are always extra uncertain. This is the time when most administrative prices are regulated, and the effects can be large in some years. In addition, there can be large variations in the price offers in the January sale. Prices normally drop in January, but as prices were unchanged last year, we expect that the annual growth in core inflation slowed to 2.6% in January, in line with Norges Bank's forecast from the December MPR. The high inflation figures from Sweden for January obviously imply a certain upside risk for the Norwegian figures, because there are some similar seasonal and administrative factors in January as in Norway.

In Sweden, the figures for industrial orders and monthly household consumption for December are being released. We anticipate some improvement in the household consumption figures, as December's retail sales and the latest consumer confidence surveys have been encouraging.

For the remainder of the week, the key data release will be the US January CPI, while US politics will also remain in focus. Attention in the US will also be on Fed Chair Powell's congressional testimony on Wednesday and US retail sales on Friday. In China, focus will be on whether a call between Xi Jinping and Trump, cancelled last week due to China's retaliation to Trump's 10% tariffs, will take place. In the euro area, data releases are limited, but Q4 employment data on Friday will be a highlight. On Friday the Munich Security Conference begins, where the war in Ukraine and possible peace talks will be in focus.

Economic and market news

What happened since Friday

In the US, the labour market report was to the strong side again. The establishment survey showed nonfarm payrolls for January grew by 143k SA, close to our forecast of +150k (cons. +170k), while data for the past two months was revised up by 100k. Average hourly earnings growth accelerated to 0.5% m/m SA, but this largely reflected a drop in average hours worked.

The household survey was heavily distorted by updated population controls, which boosted labour force and household employment estimates by 2.2m. This effect is purely statistical and has no market impact. The unemployment rate declined to 4.0% (from 4.1%), but as it is based on the household survey, it is difficult to gauge if this really reflects the labour market re-tightening. The annual benchmark revisions to NFP data from April 2023 to March 2024 was -598k, slightly less negative than the preliminary estimate suggested (-818k). Overall, nothing in the report is particularly hawkish or dovish for the markets, when you look past all the possible distortions.

Consumer sentiment fell from 71.1 in January to 67.8 in February. Notably 1y inflation expectations ticked higher to 4.3% from 3.3%, while 5y expectations were largely unchanged. While Republican respondents were much more optimistic about the future back in November and December, it seems that now both Democrats and Republicans have become much more concerned with the negative consequences of tariffs. However, Chicago Fed President Goolsbee (dovish and non-voting member) did not express new worries about inflation, repeating that the US is on its path back to 2% inflation.

Turning to the geopolitical front, Trump has reportedly spoken with Putin during the weekend about ending the war in Ukraine. Putin has indicated he is willing to discuss a Ukraine peace deal but rules out making any territorial concessions. 

On Sunday, U.S. President Donald Trump announced plans to introduce new 25% tariffs on all steel and aluminium imports, on top of existing duties. These tariffs, along with reciprocal tariffs to match other countries' rates, are set to be announced today.

In the euro area, the most discussed piece on ECB staff updates on r* was published on 7 February. While the piece emphasised do and don'ts of using the estimates for real time monetary policy decisions, it underlines that the broad range of estimates can be summarized as neutral rate being in the range of 1.75% to 2.25% in nominal terms.

In Germany, industrial production numbers were weak again in December, with production declining 2.4% m/m, leaving total Q4 production 0.9% lower than in Q3. The decline was especially due to the automotive industry and capital goods. Hence, the problems in the German industry are not over and we expect to see a continued decline in production the coming quarters. Yet, rebounding manufacturing PMIs in January gives a small ray of light in combination with the outlook for further rate cuts from the ECB, which should stabilize the industry from the second half of this year.

In Norway, manufacturing production increased 3.2% m/m in December, which seems to be a shift in the negative trend seen since last summer. Hence, manufacturing activity was down 0.8% in Q4 and will act as a headwind to GDP (due this week).

In China, CPI was stronger than expected showing a rise in the headline inflation from 0.1% y/y to 0.5% y/y (consensus 0.4% y/y) lifted by an increase in core inflation increased from 0.4% y/y to 0.6% y/y. Holiday spending from the Chinese New Year likely contributed to the increase. It is positive that inflation moved higher and further away from deflation territory, but overall price pressures are still low in China. Producer prices showed a decline again being unchanged at -2.3% y/y.

Equities: Equities were generally lower on Friday, ending just off worst levels (MSCI World -0.7%). It was a bit of a reversal of the risk appetite from the prior session, with all sectors lower and the VIX rising. Europe outperformed US, with US big tech being the notable laggard. The usual drivers were in play: yields edging higher due to a double whammy of rising wage inflation and household inflation expectations were coupled with disappointing guidance from Amazon (currency related) on top of massive capex plans. However, it was not a full risk-off session, as banks and industrials held up relatively well. Equity markets are not startled by Trump's steel tariffs, with US futures higher this morning and Hong Kong gaining a full 1.7%. We do not know details yet (such as exceptions). However, tariffs tend to gain Nordic producers which are local US producers in a net importer market and benefitted when tariffs were introduced the last time.

FI: Global rates sold off with a knee-jerk reaction on the US labour market report on Friday, despite the headline print of 143k new jobs in January was consensus. 10y UST rose 5bp on the announcement and stayed there for the rest of the trading session. For policy signals, Friday's print is difficult given the statistical uncertainties and revisions as per usual with the January print. Initially the US reaction took 10y Bund higher, albeit that reversed during the afternoon, thus with 10y Bunds ending the day broadly unchanged. Markets price 85bp worth of ECB rate cuts until year end. BundASW tightened into -3bp, a new low.

FX: Trump's new weekend pledge to impose tariffs on all steel and aluminium imports is hurting commodity currencies such as AUD and CAD. There might be even more to come this week, as Trump has threatened to unveil reciprocal tariffs on "everyone". EUR/USD is starting the week's trading in the low 1.03's whereas Scandies are close to Friday's closing levels again, following a temporary overnight sell-off. The ZAR suffers as the US has frozen all aid to South Africa.