Macro: While March retail sales were not particularly strong (with headlines sales declining by 1.0% m/m), the fall was largely driven by lower gasoline prices, as well as the reversal of some earlier weather-related strength (e.g. in car sales). Sales in most other categories held up decently, which was enough to spark a clear uptick in US yields on Friday. Fed's Waller supported the move by saying that US monetary policy would have to remain tight for a 'substantial period' and longer than markets are pricing in. Furthermore, the University of Michigan's April survey showed that consumers' 1y inflation expectations rose to 4.6% (from 3.6%), the highest since last November. Finally, the weekly Fed data showed that US bank lending had stabilized in early April after two weeks of decline, even among smaller banks and towards the non-commercial and non-residential real estate. Despite the generally softer March data (which we discussed in US Labour Market Monitor, 14 April), Friday's releases suggest that the US economy is not on the brink of an imminent recession, and that the Fed is likely to deliver a final hike in May.

Fed: Fed Governor Christopher Waller on Friday said he favoured more monetary tightening unless credit conditions tightened more than expected. The market discounts almost a full 25bp rate hike at the upcoming FOMC meeting in May.

US: According to Financial Times companies plan to spend more than USD200bn in investments in clean technology and semiconductor manufacturing - an indication that companies respond to the incentives given in the Inflation Reduction Act and Chips and Science Act.

Equities: Global equities slightly higher Friday driven by Europe, value, and the cyclical sectors. On top the performance rank were banks after strong earnings reports and higher yields. The three big US banks JPM, WFC, and C all delivered strong results but lift to guidance on the NII side was received very well by investors. In US on Friday, Dow -0.4%, S&P 500 -0.2%, Nasdaq -0.4% and Russell 2000 -0.9%. Asian markets are mostly higher this morning and the same goes for European and US futures.

FI: Global rates surged on Friday led by the front end after the US data supports further monetary policy tightening. While the 10y German yield rose 6bp on the day to 2.44%, the 2y point rose 9bp to 2.88%. During the past week, markets have added 10bp to the ECB peak policy to now stand at 3.76% in September. We still like our 4% call, which is slightly above market pricing.

FX: EUR/USD starts off the week back below 1.10 as US rates ended last week higher on the back of benign development for US financials. USD/JPY is testing 1M-highs of 134 and Scandies little changed since Friday. Our updated Riksbank call entails 50bp in April (previously 75bp), following lower-than-expected Swedish inflation for March, however EUR/SEK was little changed in Friday's trading, under depressed liquidity.

Credit: The market recovered further last week with iTraxx Main tightening 6bp to 82bp and Xover by 29bp to 430bp. The tendency could also be observed in the primary market; while EUR6.5bn of covered bonds were printed, issuance in financials was not only confined to the very safest part of the funding structure as KBC, Credit Agricole, ABN and Rabobank all brought senior deals while Generali printed Tier 2. That being said, the reopening following the period of banking stress has been led by large and established issuers and market demand for deals from less frequent issuers in unsecured format still needs to be tested.

Nordic macro

Peak inflation seems to finally have arrived in Sweden, and while the February inflation print showed a significant upside surprise, Friday's March inflation print surprised on the low side to expectations. That said, core inflation at 0.6% MoM and 8.9% YoY is still far too high for the Riksbank and the gap in core inflation compared to the Riksbank's February forecast increased to 1.4p.p.

In February, the Riksbank signalled 33bp of hikes for the April meeting. With the worst inflation fears not being realised, but inflation still far above both their target and forecast, we adjust our call ahead of the April meeting from 75bp to 50bp. We keep our expectations for another 50bp hike in June. Implying a policy rate top of 4% will be reached by summer.

Author

Jens Nærvig Pedersen

Danske Bank A/S

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