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Market insight 16.03.2023

The ECB hiked by 50 bp key rates and remained confident on the banking sector

The ECB hiked by 50 bp key rates and remained confident on the banking sector

US: Initial jobless claims (March 11): 192k vs 205k expected (prior: 212k revised from 211k)

  • Continuing claims: 1684 k after 1713 k the prior week.

US: Housing starts (Feb.): 1450k vs 1310k expected (prior: 1321k revised from 1309k)

  • A strong rebound driven by multifamily houses (from 500 k to 620 k), and a more modest rise in single family houses (from 821 k to 830k).
  • Building permits have also rebounded under the same process, driven by multifamily houses.
  • The decrease in bond yields could favor demand but it could face tougher credit conditions from banks, and this should maintain pressure on housing.

US: Philadelphia Fed. (March): -23.2 vs -15 expected (prior: -24.3)

  • Business sentiment remained depressed contrary to expectations.
  • The sentiment has decreased on both current and 6-months situations.
  • Opinions have deteriorated on new orders, shipments, and largely on employment; prices paid and received were also down in parallel.

ECB decision: key rates increased by 50 bp on remaining inflation concerns

  • The statement focused on a “too high for too long” inflation and pointed to ECB’s determination to drive inflation back to 2%.
  • The three key rates have been increased by 50 bp: main refinancing operations at 3.50%, marginal lending facility at 3.75% and deposit rates at 3.0%. The ECB reiterated being data dependent in its rates strategy.
  • The ECB is ready to respond as necessary to preserve price stability and financial stability through liquidity support if needed given current turbulences in markets and rising uncertainties.
  • The ECB also mentioned that the banking sector is resilient with strong capital and liquidity positions.
  • The ECB has revised up its 2023 growth outlook (from 0.6% to 1%) but growth should remain around 1.6% in 2024 and 2025; inflation has been revised down : from 6.3% to 5.3% in 2023, from 3.4% to 2.9% in 2024, and from 2.3% to 2.1% in 2025; the 2% target looks now closer in 2025 than in previous forecasts; core inflation has been revised up to 4.6% in 2023 (from 4.2%),but down for 2024 (2.5% instead of 2.8%) and in 2025 ( 2.2% instead of 2.4%).
  • The growth and inflation outlook are based on lower energy prices, less pressure in industry and lower constraints on purchasing power and confidence. The ECB called for a reduction in government supports to energy prices as this could interfere with medium-term inflation and further rises in key rates.
  • The tone was to reassure markets on both resilient banking sector and constructive economic outlook.
  • From the Q&A:
  • The core inflation is seen as too high with limited signs of easing; under the current bas case scenario adopted by the ECB, the bank should continue to hike rates further.
  • Risks are skewed to the downside due to tensions in markets and still geopolitical concerns with Russia.
  • MS Lagarde mentioned the ECB’s reaction function is based on inflation outlook, core inflation and monetary policy transmission; financial and market conditions are supposed to influence inflation outlook, to mention the ECB is aware of current situation; this was a way to say that the ECB is not repeating past mistakes in hiking rates just ahead of a financial crisis. The situation is different from 2008 as the banking sector is viewed as being stronger with larger active regulation.
  • Ms Lagarde mentioned this is not a liquidity crisis and De Guindos has mentioned that positions and concentration of banks on US small banks and Credit Suisse are limited and no concentrated with no particular fragility (contrary to a Bloomberg news).
  • Ms Lagarde mentioned that there is no conflict between price stability and financial stability: to pause on rate hikes, more indicators are needed to confirm the path of underlying inflation to 2%.
  • Governors have adopted today decisions, but 3-4 governors would have preferred a wait and see situation before deciding a rate hike.

Italy: CPI (Feb.): 0.1% m/m (prior: -1.5%)

  • Final data confirmed firmer monthly inflation due to higher food, transport, and communication prices. Prices of clothes and utilities were down over the month.
  • Yearly trend has marginally decreased from 9.9% y/y the prior month to 9.8% y/y.

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Market insight 17.03.2023

US consumer confidence (Michigan) lower than expected

US: Industrial production (Feb.): 0% m/m vs 0.2% expected (prior: 0.3% revised from 0%)

  • Prior data were revised up, but activity remained sluggish over the month; manufacturing production was up by 0.1% m/m after 1.3% m/m thanks to utility-energy while autos and machinery production was down; production of computer-electronics was up by 1.2% m/m after -1.7% m/m.
  • As revealed by regional surveys, activity remained fragile in industry.

US: Consumer confidence (Michigan) (March): 63.4 vs 67 expected (prior: 67)

  • Consumer confidence has come lower than expected after rebuilding momentum in the prior months.
  • Sentiment has decreased on both current situation and expectations from the past month.
  • Opinions have deteriorated on income and personal financial situation; views have turned more cautious on future activity, while staying positive on current situation. Rates are expected to rise further.
  • Willingness to buy large items, autos and houses has decreased after a rebound the prior month and sentiment has deteriorated.
  • Inflation expectations have decreased: from 4.1% to 3.8% for 1y inflation and from 2.9% to 2.8% for inflation 5-10y.
  • Volatile financial markets, rising costs of credit and tighter standards of credit would weigh down on sentiment and purchases.

Eurozone: CPI (Feb.): 0.8% m/m as expected (prior: -0.4%)

  • Inflation has rebounded as expected; all sectors have reversed after Jan. moderation and have shown a strong monthly rise: energy, food, industrialized goods and services.
  • Yearly trend has stabilized at 8.5% y/y but core inflation has accelerated from 5.3% y/y the prior month to 5.6% y/y.
  • This confirmed ECB remained worried on core inflation.

Sweden: Unemployment rate (Feb.): 7.6% vs 7.3% expected (prior: 7.3%)

  • After a bottom reached in August 2022 at 6.8%, unemployment ratio has progressively trended higher.

Brazil: Unemployment rate (Jan.): 8.4% vs 8.2% expected (prior: 7.9%)

  • Trend in labor has slightly deteriorated over the month.
Market insight 15.03.2023

US: weak total retail sales but positive core sales; PPIs have contracted over the month

US: Empire manufacturing (March): -24.6 vs -7.9 expected (prior: -5.8)

  • Sentiment has sharply deteriorated on current situation and the 6-month index has also decreased over the month (from 14.7 to 2.9).
  • Weakening confidence was seen in new orders, shipments, inventories and also employment on current situation; on the 6-month views, only shipments and employment have improved over the month.
  • The total index has been highly volatile past months, but the trend is weakening over past quarters.

US: Retail sales (Feb.): -0.4% m/m as expected (prior: 3.2% revised from 3%)

  • Sales were negative but large disparities were seen across sectors over the month.
  • Data by sectors have shown a reversal in sales after the prior month rebound for: autos, furniture, building materials, clothes and eating-drinking; sales of gasolines remained negative over the month.
  • Core sales (excluding food, energy, building materials and autos) were up by 0.5% m/m after 2.3% m/m; sectors such as electronics, internet sales and health sectors remained positive over the month.
  • Once again, volatility is large across sectors while underlying trend (i.e. consumption included in GDP) remained modest but still not collapsing.

US: PPI (Feb.): -0.1% m/m vs 0.3% expected (prior: 0.3% revised from 0.7%)

  • Prices have declined thanks to lower prices in energy, foods and also in services (trade and warehouse services).
  • Core PPI were up by 0.2% m/m after 0.5% m/m the prior month.
  • Yearly trend has declined from 5.7% y/y the prior month to 4.6% y/y.

US: Business inventories (Jan.): -0.1% m/m vs 0% expected (prior: 0.3%)

  • A rebound in inventories in retailers while inventories were down in other sectors. Sales were up by 1.5% m/m after -0.6% m/m the prior month.

US: NAHB housing market index (March): 44 vs 40 expected (prior: 42)

  • Confidence has slightly improved; current sales and new demand have improved over the month.

Sweden: CPI (Feb.): 0.9% m/m vs 0.7% expected (prior: -1.3%)

  • Prices have re-accelerated over the month due to higher prices fo food, clothes, household goods and sectors related to tourism and leisure.
  • Yearly trend has accelerated from 9.3% y/y the prior month to 9.4%y/y, and for core inflation from 8.7% y/y to 9.3%y/y.
  • The inflation picture should oblige the bank to hike further (probably by 50 bp in next meeting) despite uncertainties still attached to the Silicon Valley Bank.

France: CPI (Feb.): 1.1% m/m vs 1% expected (prior: 0.4%)

  • Final data have pointed to slightly higher inflation than initially estimated over the month.
  • Prices have again accelerated in several sectors over the month: food (fresh food particularly), clothes, energy outside oil prices and finally services (up by 0.8% m/m after 0.1% m/m the prior month).
  • Yearly trend has re-accelerated from 7% y/y the prior month to 7.3% y/y.

Eurozone: Industrial production (Jan.): 0.7% m/m vs 0.3% expected (prior: -1.3% revised from -1.1%)

  • Production has rebounded over the month, thanks to intermediate sector while other sectors reversed and contracted.
  • Irish production was up by 9.2% m/m after -12.3% m/m the prior month; excluding Irish, production would have been down by 0.3% m/m.

Germany: Wholesale price (Feb.): 0.1% m/m (prior: 0.2%)

  • Yearly trend has declined from 10.6% y/y to 8.9% y/y.

Poland: CPI (Feb.): 1.2% m/m vs 0.8% expected (prior: 2.4% revised from 2.4%)

  • Food and transport prices were on the rise, while oil and prices of clothes were down over the month,
  • Yearly trend has accelerated from 16.6% y/y the prior month to 18.4% y/y.
Market insight 14.03.2023

US CPI inflation broadly in line with expectations, with few signs of moderation

US: CPI (Feb.): 0.4% m/m as expected (prior: 0.5%)

  • CPI y/y: 6.0% as expected (prior: 6.4%)
  • Core CPI: 0.5% m/m vs 0.4% expected (prior: 0.4%); 5.5% y/y as expected (prior: 5.6%)
  • Core CPI prices rose 45bp m/m in February, just a touch above the 40 and 41 basis point increases in December and January, but still below the 54bp average pace in the year up through October.
  • By far the largest single component in the CPI, owners' equivalent rent (OER) continued to increase strongly, up 0.7% (same as in January) and has yet to show signs of the slowing in market rents over the past year and a half.
  • The broad categories of prices for core goods outside of used cars (-2.8% m/m) and core services outside of rents and medical care (-0.5%) continued to increase solidly in February. Core services prices excluding rent and OER rose 0.50%, 0.17pp firmer than the prior 3-month average.
  • Overall, the trends that have been fueling inflation for the last few months remain intact, with strong service price pressures (+0.5%) and very little easing on the goods side. The path of inflation is likely to remain volatile in the coming months.

US: NFIB Small Business optimism (Feb.): 90.9 vs 90.3 expected (prior: 90.3)

  • Sentiment among small business improved to a 3-month high in February, but the gauge remains well below pre-pandemic levels.
  • Interestingly, a net 38% of businesses reported raising average selling prices, down 4pp from January to the lowest level since April 2021, suggesting a (slow) easing in inflationary pressures.

Italy: Industrial production (Jan.): -0.7% m/m vs -0.4% expected (prior: 1.2% revised from 1.6%)

  • IP y/y: +1.4% vs 2.9% expected (prior: -0.9% revised from 0.1%)
  • Manufacturing production was also down by a disappointing 0.7% in January (up 3.0% y/y)

UK: Unemployment rate (ILO) (Jan.): 3.7% vs 3.8% expected (prior: 3.7%)

  • Jobless claims change in February: -11.2k after -30.3k in January (revised from -12.9k)
  • The labour market remains strong, with the unemployment rate steady at 3.7%, close to the lowest rate since the 1970s.
  • Moreover, payrolled employees for February showed another monthly increase, +98k to 30 million, above consensus of 65k.

UK: Average earnings incl. Bonus (Jan.): 5.7% y/y as expected (prior: 6.0% revised from 5.9%)

  • Annual wage growth edged lower and, on a 3m/3m annualized measure, private sector wage growth fell from 6.9% to 5.7%.
  • This suggests a further cooling of wage pressures.