Tier-two releases and politics in focus

In focus today

• From the US, Conference Board's February consumer confidence survey is due for release. The Fed's Logan and Barkin will also be on the wires today.

• Today, we receive the ECB's negotiated wages indicator for Q4 2024. We expect that negotiated wage growth declined to 5.0% in the fourth quarter based on country data and more timely wage indicators. It is important to be cautious when interpretating the negotiated wages indicator as it can be very volatile, which the past quarters have shown with wage growth at 5.4% y/y in Q3 up from 3.5% y/y in Q2 due to the timing of one-off inflation compensation payment.

• In Hungary the central bank will announce its policy rate. We and markets expect an unchanged decision, keeping the policy rate at 6.5%.

Economic and market news

What happened overnight

In China, the 1y Medium Lending Facility rate was left unchanged at 2.0%. This is in line with our expectations, as we believe PBOC remain sidelined awaiting new signals from the Fed and on tariffs before deciding on the next move.

What happened yesterday

In the US, President Trump pressed the tariff "on" button again, stating that the planned tariffs on Canada and Mexico are "going forward on time, on schedule" - although he did not specifically mention the 4 March deadline. A US official also stated that the reciprocal levies which may hit all countries will take effect in April. The headlines saw the USD ticking higher against CAD and MXN.

In the euro area, the final inflation data for January confirmed the flash release with headline inflation at 2.5% y/y and core inflation at 2.7% y/y. Details revealed that mainly energy prices drove the uptick in inflation. At the same time, some one-off factors were also visible in prices adjusted in January, mainly due to previous inflation, and thus are not indicators of future price pressures.

All in all, the details of the final release confirm that underlying inflation continues a cooling trend, while the rise in headline inflation was mainly due to energy prices and some one-off effects on core services in January.

In Germany, the Ifo indicator was lower than expected in February, staying put at 85.2 (cons: 85.8) - in contrast to the uptick recorded in the PMIs. The subcomponents showed an increase in expectations and a decline in the assessment of the current economic situation. Hence, the German economy continues to be stuck in the mud. 

Turning to politics, the German election winner Friedrich Merz opened the door to loosening Germany's "debt brake" - the rule capping the federal government's net borrowing at 0.35% of GDP - before the new parliament is established to allow for more defence spending. Merz has roughly a 30-day window to push this through before the new parliament is settled, where AfD and Die Linke's securing more than a third of the seats gives them the power to block any constitutional changes to the debt brake.

On the geopolitical stage, the UN General Assembly backed an EU-Ukraine resolution condemning Russia's invasion, with 93 countries in favour and 18, including the US and Russia, opposed. The US proposed a rival resolution avoiding mention of Russian aggression, reflecting Trump's policy shift toward engagement with Putin. According to the AP, Trump also stated that he is in "serious" talks with Putin about ending the war -though Putin said they have not discussed resolving the war in detail, while Moscow has not ruled out European participation in any peace talks. U.S. diplomats attempted to block the EU-Ukraine resolution, emphasizing a vague commitment to peace instead.

Also, French President Macron was at the White House yesterday, meeting with Trump. Per Fox News, Macron said that a potential ceasefire between Ukraine and Russia could be negotiated within the coming weeks.

Equities: Despite the promising start, markets were unable to rebound Monday. Equities were mostly lower (MSCI World -0.5%) driven by the US while Europe were unchanged. The rotation into defensive stocks continued, with health care, real estate and banks in the lead, while investors took home profits in tech and industrials. Despite the thin news flow, VIX continued higher, just south of 20, so sentiment has evidently turned sour among US investors. Asian markets broadly lower this morning and US futures just north of zero.

FI: Another trading session with limited volatility. 10y Bunds traded in a narrow 4bp range, as they digested the German election result. The result was close to indications suggested thus leading to the limited market impact. Last night, discussion on a potential EUR200bn defence spending package led by Merz and supported by SPD was mentioned. This is likely to weigh on ASW spreads this morning.

FX: The USD and JPY was on the losing end on a relatively calm day in FX markets yesterday. The EUR ended the day higher as the market was relieved by the results of the German election, which did not bring about any big surprises.

Equities: Despite the promising start, markets were unable to rebound Monday. Equities were mostly lower (MSCI World -0.5%) driven by the US while Europe were unchanged. The rotation into defensive stocks continued, with health care, real estate and banks in the lead, while investors took home profits in tech and industrials. Despite the thin news flow, VIX continued higher, just south of 20, so sentiment has evidently turned sour among US investors. Asian markets broadly lower this morning and US futures just north of zero.

FI: Another trading session with limited volatility. 10y Bunds traded in a narrow 4bp range, as they digested the German election result. The result was close to indications suggested thus leading to the limited market impact. Last night, discussion on a potential EUR200bn defence spending package led by Merz and supported by SPD was mentioned. This is likely to weigh on ASW spreads this morning.