Consumer confidence to shed light on European economic outlook

In focus today

Large data prints are due in Denmark. We receive consumer confidence data for February. We expect confidence to rise to -11, which still indicates a negative view of the Danish economy among the Danes despite the noticeable uptick in consumption and wages outpacing inflation. GDP for Q4 is also due, with current data indicating a slight decline in industrial production, a modest increase in construction and some growth in consumer services. Overall, we expect GDP growth of 0.2% q/q, but uncertainty is very large.

In the euro area, consumer confidence data for February is set to be released and will be of high interest. After a continuous upward trend over the past two years, consumer confidence has declined in recent months. Given that private consumption is anticipated to be the main growth driver this year, consumer sentiment will be important for the economic outlook.

Economic and market news

What happened overnight

In China, Loan Prime Rates were unchanged as expected at 3.6%. PBOC likely awaits more information on what the Fed is doing in their policy stance and what happens on tariffs. They do not want to add to weakening pressure on the CNY but have signalled a preference for stability.

In the US, President Trump mentioned future tariffs on cars, semiconductors, chips, pharmaceuticals, drugs and lumber over the next month. This reinforces his remarks on Tuesday, although no additional information was added.

What happened yesterday

In the euro area, Isabel Schnabel, a member of the ECB Executive Board known for her hawkish stance, proposed initiating a discussion on whether additional rate cuts by the ECB are necessary. This suggestion follows her comment last month indicating that the direction of rate cuts is no longer as clear.

In the US, the Fed's January policy meeting took place. A 'vast majority' of FOMC still saw current policy as restrictive, although 'significantly less' so than before the start of the easing cycle. This still implies a clear bias towards cutting further in the future, but no sense of urgency.

There was considerable discussion about the potential inflation risks associated with fiscal, immigration, and trade policies. Most comments on realized inflation data were optimistic, with a couple of participants noting that distinguishing between 'persistent' and 'temporary' changes to inflation could get increasingly difficult over coming months. Yields ticked slightly lower, but overall reaction was muted.

In Sweden, the Inflation Expectation Survey conducted by the Origo Group (previously Prospera) was released. We saw an increase in the five-year inflation expectations mean to 2.2%, which could be considered somewhat concerning. However, a closer examination reveals that the median remains unchanged at 2.0%, suggesting that the upward drift in the mean was likely due outlying responses. Overall, we do not view the survey results as a decisive factor impacting future rate decisions by the Riksbank this time around.

In the UK, January's CPI data presented a mixed picture. The headline rate was higher than expectations at 3.0% (cons: 2.8%, prior: 2.5%), while core matched forecasts at 3.7% (cons: 3.7%, prior: 3.2%). Services inflation was lower than anticipated, aligning with the Bank of England's expectation of 5.0% (cons: 5.1%, prior: 4.4%). The headline increase was driven by fuel prices, education, and base effects from airfares. With a rise in core services, the Bank of England is likely to maintain a gradual approach to monetary policy. This is the final CPI release before the Bank's meeting on 20 March, making a rate cut unlikely, with expectations shifted to May.

In China, the release of home prices was mixed. New home prices showed -0.07% m/m vs -0.08% m/m in December and existing home prices -0.34% m/m from -0.31% m/m. The data still shows no convincing sign that housing has turned the corner but at least the picture has improved over the past six months. Our baseline is still a moderate recovery in prices and sales activity in 2025 from very low levels. A turn in housing is key to get a sustained recovery in private consumption, one of the top priorities for Chinese policy makers this year. View more in our China Headlines, 19 February.

Equities: Equities were mostly lower yesterday. Europe broke the streak of gains while US rose modestly in a quiet session. European equities and especially Germany came under pressure, with DAX selling off -2.1%. For the first in a long time, sector performance was cautious as well. We have been surprised to see how well markets have coped with Trump's tariff threats, so it makes sense to see some investor angst returning. Tariff sensitive auto stocks fell 2% together with construction and materials after a strong run this year. Investors found shelter in staples and health care. That said, Trump's critical comments of Ukraine and tariff threats did not take VIX higher. Volatility is still parked at 15, close to year-lows despite all the moving pieces on geopolitics. US futures are somewhat lower this morning.

FI: European rates sold off across the curve, with the biggest sell-off happening from the belly of the curve with a 6bp sell-off. 10y Bunds are now trading at 2.55%, which is a sell-off of almost 20bp since the 2.36% trough less than two weeks. Expectations for higher debt issuance and a string of better-than-expected data, and less geopolitical turmoil may all be attributable to this.

FX: Yesterday was another relatively quiet session in FX markets, with broad USD strength except against the JPY and NOK. EUR/USD has remained rangebound this week, trading with a slight downward bias within the 1.04-1.05 range. Despite rising long-end US yields over the past couple of days, USD/JPY has notably declined toward YTD lows below 152 following hawkish remarks from BoJ board member Hajime Takata. EUR/GBP has remained firmly below 0.83. In Scandies, EUR/SEK dipped below 11.20, while EUR/NOK edged lower to around 11.60.