With the Pacific G10 Macro Rates Team
Global Macro Overview
Last week the main news and market reactions were again dominated by Coronavirus events and news flow. Markets repriced as they continued to absorb the virus related information flow. A picture of lower economic activity has emerged and the markets have priced a higher probability of large-scale lockdowns being implemented in Europe and North America. This realisation was a result of extensive outbreaks over the previous weekend in northern Italy and South Korea, demonstrating that modern countries with well-developed health systems are no less susceptible than any other.
Interest rate markets have rallied significantly with 25 to 30 basis point moves in USD short-term forward rates, resulting in roughly four rate cuts now priced in for the next eight Federal Open Market Committee (FOMC) meetings. These moves in rates are pushing the world’s central banks towards rate cuts, which may well eventually happen. However, the short-term rhetoric from the G10 central banking community, which sounded very coordinated, has been one of action if required with the caveat that central banks are ill equipped to meet the needs of an epidemic.
More interestingly was the noise some politicians were making. Whilst this response from central banks is quite understandable, the demand that something must be done, has resulted in what is known as “targeted fiscal”. This response has already been announced in South Korea, Singapore, Australia and the USA. The details of this fiscal spend are yet to be released, but the theme of targeted fiscal response is one that we expect other governments to adopt.
Apart from some of the most recent sentiment data, the economic data released last week was limited and pre Coronavirus, so mostly ignored. However, as we move forwards, we expect more data to incorporate the impact of the Coronavirus to a lesser or greater degree.
US: The Federal Reserve’s most important inflation measure, the PCE Core Deflator, came out at 1.6% (exp. 1.7% prev. 1.6%). Business sentiment was confused with current conditions and future expectations both moving in different directions, depending on which survey you looked at.
Canada: Q4 GDP came out at 0.3% (exp. 0.3% prev. 1.3%).
Eurozone: CPI printed at reasonable levels both on a Eurozone basis at 1.6% (exp. 1.6% prev. 1.7%) and on an individual country level with German CPI 1.7% (exp. 1.6% prev. 1.6%), French CPI 1.6% (exp. 1.6% prev. 1.7%) & Spanish CPI 0.90% (exp. 0.80% prev. 1.10%). And the IFO survey can in slightly stronger.
Sweden: The data demonstrate that the December rate hike has not impacted consumer confidence to any significant degree with retail sales at a very encouraging 2.70% (exp. 2.40% prev. 3.40%) and Q4 GDP printing at 0.8% (exp. 0.7% prev. 1.6%).
Norway: Retail sales were reasonable at 0.5% (exp. 1.2% prev. -2%) and unemployment came in at 2.3% (exp. 2.3% prev. 2.4%).
The Jobless Rate ticked slightly higher at 2.4% (exp. 2.2% prev. 2.2%), retail sales were expected to be weak but came in at -0.4% (exp. -1.3% prev. -2.6%) and Industrial Production held up well at 0.8% (exp. 0.2% prev. 1.2%).
The negotiating stance for the Brexit trade deal was announced from both sides. This was more posturing than indicative of a final deal so, we expect the details to evolve going forwards. There was no significant data.
Australia & New Zealand: No significant data
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