Macro

• Stagnant growth and price deflation have defined the term Japanization, and, due to rapidly rising debt levels in conjunction with aging populations, long been the striking worry for many economists.
• Post-Covid inflation has shifted the narrative however, and fears of it becoming structural has taken over as the new doom-scenario globally.
• For Japan though, inflation is not so much a fear as a hope, and we see signs that Japan is in fact achieving sustained inflation.

• IPOs / In Depth: China IPO slowdown pits startups against investors
• Pakistan /: Beijing pushes Pakistan to hunt down ‘terrorists’ after bombing kills five Chinese
• TikTok /: Rivals vie to fill market void as U.S. business ban looms over TikTok

• As of the week ending 15/March, crude inventories fell more than expected (2 million barrels vs 900k barrels expected) led by higher exports and refinery activity.
• Refineries operations have picked up faster than anticipated, with the utilization rate jumping from 80% in early February to nearly 88% by 15/Mar.
• OPEC members like Iraq, UAE, Gabon, and Kuwait, have exceeded their production quotas, raising concerns about adherence.

• Nominal disposable income continues to surge amid widespread enormous pay rises. Unmatched by productivity, the nominal boost is eroded by inflation to real stagnation.
• The regime of high nominal increases nonetheless inflates away the debt stock, helping sustain affordability despite forceful interest rate increases.
• An inflationary reduction in debt burdens is not real wealth. The UK’s net worth is crashing to record negatives as corporates and households suffer post-pandemic.

• Loads of stuff are going on in Global Macro, with global equities on the rise yet again, the JPY struggling a bit after unsuccessful attempts from policymakers, including the verbal FX intervention from MoF and BoJ today, and the Spanish HICP numbers, which we hit right on the mark! The benign base effects and dovish outlook has potentially paved the way for a cut in June, but what should you look out for in the meantime?
• We give you 5 topics from our watchlist.
• This week we are watching out for the following 5 topics within global macro.

• TikTok /: ByteDance holds firm against selling TikTok despite U.S. ban threat
• Corruption /: Head of Chinese Football Association sentenced to life in prison
• CMB /: Exclusive: China Merchants Bank punishes two private banking executives, sources say

• Powell’s dovish tone at the press conference led to initial market reaction, but subsequent dollar rally due to revised growth and inflation forecasts in the SCP release
• Market leaning towards higher median dot in SCP, but overall outlook remains for shallower cutting cycle by Fed
• Yen vulnerability due to negative real yields despite BOJ rate hikes, yen weakening may impact other Asian currencies and markets

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• Cautious but promising signs emerge from China’s consumer demand landscape.
• According to China’s statistics bureau, consumer prices saw a 0.7% increase year-on-year in February, marking the first rise since August.
• The extended Lunar New Year holiday period, spanning 8 days instead of the usual 7, nearly matched pre-pandemic domestic spending levels.

• Last week we took healthy profits in some of our global reflation bets.
• We got out of silver and copper, but remain in the broad materials ETF.
• Data out of China is a bit unclear with some prints being bullish and others bearish and then ambiguous data points such as the BOOMING copper stock. 

• Welcome to this week’s Great Game.
• We’re going to try out a slightly new format this time.
• Instead of unfolding one major topic, we will cover a couple stories more briefly, so you are covered on the most important stories in geopolitics right now.

• Hello everyone, and welcome back to our weekly positioning watch! The weather in Copenhagen is sunny, and so is the mood in markets, with aggregate equity fund flows in the US reaching 2-year highs this week.
• Markets are certainly back into full risk-on mode, with the Fed promising rate cuts amidst reflationary trends in the US, which is a trend that is slowly but surely spreading to the rest of the world.
• The cyclical rebound is not truly there yet in Europe, which means that European indices are starting to get flagged as overpriced in our quant-models.

• Price expectations in services ex. real estate continued its downtrend and we now find ourselves at 2018-19 levels in what is pointing towards lower core inflation readings in the second half of the year. 

• Meanwhile price expectations in manufacturing climbed and looks like they have bottomed out at levels consistent with the price mandate of the ECB.

• The drop in input prices, the global reflation story and expectations of ECB rate cuts seem to have had an effect and the question now becomes which of the two manufacturing and service price expectations will impact inflation come Summer and Fall the most.   

• The preliminary European inflation numbers will be released during this week, while Germany has decided to postpone the release until after Easter.
• We are leaning dovish relative to consensus, but due to VAT increases in Spanish electricity markets, it will not look like an outright home-run for disinflationistas in March either unless markets decide to focus on the TAX-constant HICP rates.
• Spanish HICP (Wednesday) -> Consensus 1.4%, Steno Research 1.26% 

• The abrupt resignation of President Thuong is a sign that a major intra-party struggle within the ruling Communist Party is underway.
• Claims that Thuong resigned for failure to tackle corruption should be taken with more than a pinch of salt, given the politicization of the anti-corruption campaign by the party secretary-general. 
• Pro-Growth policies will be maintained regardless of the political turnover, but prolonged turmoil will risk the country losing its moment in the sun. 

• TikTok /Cover Story: The countdown begins: TikTok navigates uncertain future amid U.S. ban bill
• Forum /: Premier reiterates commitment to making China a better place to do business
• Ma Ying-jeou /: Former Taiwan leader to make first visit to Beijing

• The catalyst: Japan’s Vice Finance Minister. ‘The current weakening of the yen is not in line with fundamentals and is clearly driven by speculation.’
• As the Bank of Japan will not or only marginally hike its policy rate from here, the interest rate differential can only go one way. 
• China to the rescue? China needs a stable currency, at least not a weaker one. 

• For the first time since 2016, the Bank of Japan has decided to raise interest rates, becoming the last country in the world to end its loose monetary policy stance, and signaling an end to the country’s deflationary cycle that has dominated policy decisions for the better part of the last decade. The impact of the BoJ’s policy move this week has led to volatility in global markets.
• The Japanese Yen (JPY) has also depreciated against major currencies since the central bank raised its policy rate, as the policy move is suggestive of a gradual transition from accommodative policy by the central bank, rather than a hard exit into a tighter monetary environment.
• Prior to the rate hike, the JPY has also seen a relatively softer appreciation against many developed currencies, especially the USD, as global markets priced in fewer than expected rate cuts by the Fed over the year making the interest rate differential still attractive.

• The IEA has recently adjusted its 2024 supply/demand forecast to align more closely with Opec’s predictions.
• This adjustment is based on optimistic estimates for the Chinese and US economies.
• However, these estimates are contingent on the continued discipline of Opec+ members, which is not guaranteed.

• Fund Manager Positioning In March fund managers added to their energy position but reduced overall commodities like grains, softs and metals on a MoM basis — the latest BofA survey shows.
• Investors have been underweight commodities now for the past 4 months (longest underweight streak since Aug’19) Compared to the past 20-year z-score, fund managers remain heavily underweight in commodities and even more in energy.
• In March fund managers added to their energy position but reduced overall commodities like grains, softs and metals on a MoM basis — the latest BofA survey shows.

• The ongoing Fed pause puts emphasis on the interactions between financial conditions and headline growth  
• My proprietary measure of financial market conditions seems to be broadly consistent with the Fed Board’s indicator of financial conditions   
• Chair Powell alluded to the prospect that financial conditions are currently “weighing on economic activity”    

• In straightforward terms, we are still in a risk-on environment with many analysts and market observers now thinking that US equities – a key momentum driver for all risk assets – are heading towards 6000 at some stage.
• The chart below from analysts at French investment bank SocGen is a useful tool for quickly mapping global, cross-asset class sentiment.
• It measures “market sentiment by looking at the short-term dynamics of six risk-related variables across different asset classes. 

• The past week saw insights on GoTo Gojek Tokopedia (GOTO IJ), Cisarua Mountain Dairy (CMRY IJ), Far East Hospitality Trust (FEHT SP), and Delta Dunia Makmur (DOID IJ). 
• There was also a macro insight on Indonesia, with commentary on Ace Hardware Indonesia (ACES IJ), Astra International (ASII IJ), and DCI Indonesia Tbk PT (DCII IJ).
• The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

• The Fed’s forward guidance remains unchanged from December. Three potential policy rate reductions in 2024. Economic growth expectations were revised upward, providing a bullish backdrop for higher corporate profit expectations. 
• The early tapering of quantitative tightening (QT) will reduce the supply of notes and bonds to private investors, thereby boosting the attraction of risky assets and further easing financial conditions. 
• Recent Bank of Japan policy changes need not be disastrous for US Treasuries, particularly as the Fed’s buying capacity will soon be enhanced by the arrival of QT tapering. 

• Cyclically sensitive copper is rallying, but the copper/gold ratio has been trading sideways. Are the markets signaling a cyclical rebound, or not?
• We find that the market is signaling the prospect of a cyclical recovery through its price action.
• Stock prices have run ahead by expanding the forward P/E ratio. The upcoming earnings season will be an acid test of the cyclical recovery narrative.

• Record Allocations Mask Caution: Record investments in India contrast with a rising underweight, as selected managers pare back exposure.
• Valuations Prompt Strategic Pause: Record underweights among Value funds reflect valuation concerns, with growth funds also seeing overweights decline.
• India vs. China: Allocation Shifts: The stark contrast in allocation trends underscores a strategic pivot within EM, highlighting record divergences between the two.

• It is always lovely to get back on the road and meet a load of fund managers, and it is nice to see that a few reflation skepticals are still found out there.
• I went to London to meet with a bunch of the big funds in town, hot on the heels of Powell’s reflationary Fed meeting on Wednesday.
• It almost annoyed me how “vanilla” my analysis had to be on the back of it, as the Fed is moving the needle lower and lower and lower on the implied Real Fed Funds rate every meeting currently, no matter the underlying developments in inflation and/or growth.

• Our early conviction in pro-cyclical trends keeps getting confirmed.
• Initially, our nowcast indicator for China signaled a positive outlook, and most notably this week, the Li Keqiang Index has experienced its strongest monthly surge since 1999.
• Consequently, Asian currencies and the AUD still appear undervalued when compared to the early yet unfolding expansion outside the US.

• Audit /: U.S. watchdog fines three KPMG China partners for audit violations
• Law enforcement /: As profit-driven, cross-regional law enforcement grows, scholars suggest fines be turned over to central government
• China-Ukraine /: Ukraine’s top diplomat says China has ‘big potential’ role to help end war with Russia

• Thailand’s economic outlook appears bleak, with downward revisions in GDP growth forecasts signaling ongoing challenges in investment and export sectors, compounded by political discontent.
• Vietnam has demonstrated resilience, showcasing a notable recovery in trade and tourism despite corruption scandals, underlining its potential as an emerging market.
• Hong Kong’s adoption of the national security law has drawn attention, yet its impact on the business landscape may be less significant than anticipated, emphasizing the importance of nuanced perspectives amidst regional developments.

• Switzerland sparks the start of a global wave of monetary policy easing. And it’s only March!
• Why are central banks already contemplating rate cuts when inflation levels are significantly above target, and the global economy is at full employment?
• I explain why investors should pay more attention to the MOVE Index and less to the VIX Index. It comes down to the answer to the question above.

• The bad news is that Hong Kong will not have a V-Shaped recovery which will keep market sentiment subdued
• The good news is that Hong Kong will not have a V-Shaped recovery which will contribute to a reduction in overall market volatility
• After an epic bear market, Hong Kong will enter a secular bull market this year

• China’s government is targeting an economic expansion of approximately 5% again this year.
• A challenging objective considering the myriad of challenges facing the world’s second-largest economy.
• These challenges include weak consumer spending, a real estate sector in turmoil, efforts by the US to limit its technological advancements, unprecedented youth unemployment rates, and significant debt levels among local governments.

• The exceptional Covid-induced monetary and fiscal stimulus is being wound down, but not fast enough. Fiscal deficits averaged 10% of GDP for 4 years, far larger and longer than 2009-11.  
• QT was abandoned in Jul’23, and M2 has contracted at a modest pace. Upside growth surprises are thus likely to continue, and will require Q2CY24 M2 to decline more sharply. 
• Once core CPE inflation abates below 2.5%YoY (likely Jun’24) the first 25bp rate cut will occur at the Jul’24 FOMC, then similar cuts in Sep’24 and Dec’24. Benign for markets. 

• Financial markets reacted partly to Chair Powell’s presser and the updated projections  
• The new median dot, while still anticipating three rate cuts in 2024, shows a somewhat shallower Fed easing path in 2025 and 2026
• The current market implied odds, though fluid and unsettled, repriced aggressively following the March meeting

• In 2023, the United States economy registered robust growth, with a Gross Domestic Product increase of 3.3% in the fourth quarter, resulting in an overall annual growth rate of 3.1%.
• This expansion was mainly driven by a 2.8% increase in consumer spending, despite the prevailing challenges caused by elevated interest rates, persistent inflation, and looming recession fears.
• The positive momentum entering the current year is bolstered by carry-over effects from the preceding year, suggesting a continuation of economic expansion.

• Debt / In Depth: Local governments struggle to tackle mountain of hidden debt
• Guizhou / China graft busters launch probes into regional officials linked to debt dispute 
• Loans /China’s new loans to nonbanking institutions hit nine-year high

• The Norges Bank decided to keep the policy rate at 4.5% to balance inflation control and economic growth amid slowing but above-target inflation and modest economic activity.
• Inflation is now expected to decelerate somewhat faster than anticipated, economic growth is more subdued in the first half of 2024 before improving, while unemployment rises slightly less than previously expected.
• The Committee is ready to adjust the policy rate in response to evolving economic and inflationary trends. It aims to steer inflation towards the 2% target by the end of 2027 while navigating prevailing uncertainties.

• The BoE held the Bank rate at 5.25%, with only one dissent for a cut as the two hawks stopped pushing for a hike that was not going to happen, given broad resistance.
• An extended period of restrictive policy is still envisaged, with persistent inflationary pressures rather than the spot CPI rate guiding when rate cuts begin.
• Wage and service inflation is not seen returning to target sufficiently rapidly yet, and we expect that problem to persist, leaving our call for the first cut back in Feb-25.

• The SNB’s unexpected rate cut to 1.5% reflects a strategic shift, influenced by sustained below-target inflation and the effectiveness of previous monetary tightening, underscoring the bank’s commitment to price stability and economic support.
• Future policy decisions will hinge on inflation dynamics, global economic conditions, and domestic economic health. The SNB is poised to adjust its stance in response to evolving economic indicators and inflation forecasts.
• The SNB’s approach balances supporting economic growth and ensuring price stability, indicating a readiness to adapt policy measures in the face of heightened economic uncertainties and shifting global dynamics.

• The 2024 projections for Greece show a slight rise in its GDP growth, as Real GDP would reach €199.205 billion, reflecting a 2.15% increase compared to the previous year’s projection of €195.019 billion.
• In overall looking at the past and current year, the OECD, IMF, and EU have forecasted average growth rates of 2.29% for 2023 and 2.15% for 2024.
• The projections for Public Debt indicating a decline from €367,842 mn 2023 to €363,454 mn in 2024.

• Three 25 bps rate cuts signaled for the remainder of 2024 and 175bps by the end of 2025
• Bank of Japan, despite a rate hike  keeps monetary policy extremely accommodative
• Reported inflation will return making sector selection in equities key

• The Fed stuck with its intention to cut rates three times this year while penciling in one rate cut less for 2025 and 2026.
• The key takeaway was that Powell is really keen on maintaining ample liquidity instead of what he calls abundant liquidity now. 
• Stocks, Gold, and Bitcoin love ample liquidity, especially when it becomes abundant again when the economy heads south.

• While industrial production data for early-2024 was an upside surprise, it would not do to get carried away by a few favourable data points. 
• The glimmers of hope in the data may be behind the central bank’s decision not to cut rates despite feeble price pressures. 
• However, monetary policy tradeoffs have become more stark given the downward pressures on the yuan.  

• In this insight, we provide a back-testing analysis of the impact of the National Assembly Elections on the Korean stock market. 
• KOSPI tends to display positive price performance one month and three months prior to the election date leading up to the election date. 
• On the other hand, KOSPI tends to decline one month and three months post the election date. We believe that post National Assembly Election, KOSPI could face greater headwinds.

• This week we are looking at the BoJ hiking rates for the first time since 2007 and its effects on the Japanese economy.
• Afterwards we will have a look at the improving sentiment in Germany and then at a dive into the commodity rally currently underway.
• The we’ll talk about Canada where rates finally look to be impacting the economy and then we’ll end up with a short look at US inflation expectations.

• Merchandise exports grew 11.9%YoY in Feb’24 (+7.5%YoY in Jan-Feb’24) amid a broad-based rebound in engineering, pharma, chemical, electronic exports. With exports outpacing imports, the merchandise deficit declined 8.2%YoY in Apr’23-Feb’24. 
• Services exports are robust, with many hitherto-imported services also moving onshore. The services trade surplus widened 20%YoY in Apr’23-Jan’24, likely enabling the FY24 CAD to shrink to 0.6% of GDP.
• With goods exports set to accelerate, and crude oil prices relatively tame, we expect the current account to swing to a surplus in CY24 (and +0.5% of GDP in FY25). 

• Bank Indonesia unsurprisingly maintained the BI-Rate at 6.00% amid a cautiously optimistic global economic outlook and strong domestic growth projections for 2024.
• Future policy decisions will continue to emphasize Rupiah stability and keeping inflation within the 2.5 ± 1% target amid external uncertainties and internal pressures from volatile food prices.
• Bank Indonesia remains committed to supporting sustainable economic growth and expanding financial inclusion through macroprudential relaxations and advancing payment system digitalization, alongside strengthening international cooperation and policy synergies at the national level.

• Ahead of the Norges Bank meeting tomorrow morning, we’ll elaborate on the mechanics behind the rate path model at Norges Bank and how the new path will likely look tomorrow.
• The below visualization is a great rule of thumb on the impact of various categories in the mechanical adjustment to the rate path.
• If I44 (NOK import weighted) increases by 1% relative to the base-case, it impacts the curve by 10bps.

• UK CPI inflation slowed 0.1pp further than expected to 3.4% in February amid soft goods prices, but services prices were strong again by only easing to 6.1%.
• Underlying inflation pressures remain sticky, with the median inflationary impulse stuck close to 3%. These data remain inconsistent with a sustainable return to the 2% target.
• Proximity to the target relies upon the temporary drag from falling energy prices and is not a reason to cut. Wage growth is too high, fuelling resilience that postpones cuts.

• On 19 March, Choi Sang-Mok announced that the Korean government plans to provide corporate tax reduction benefits to companies that cancel their treasury shares. 
• The separate taxation of dividend income is also expected to be promoted. All of these are law amendment issues and must go through the legislative process of the National Assembly. 
• At this time, the Korean government did not provide the entire details about the exact amount of corporate tax reductions from share cancellation and separate taxation of dividend income. 

• Zooming out reveals that the Bank of Japan has not shifted to a different monetary policy regime.
• The negative relationship between total debt-to-GDP and interest rates has been confirmed once again.
• With the Federal Reserve poised to cut rates more than three times this year, the case for a short yen position is thin.

• Insurance / Cover Story: China’s challenge to fill the multibillion-dollar insurance blackhole
• Corruption /: Ex-Beijing hospital president taken away by corruption investigators
• Listings /: China issues stringent rules to tighten listing controls and tackle financial fraud

• Finally some action from the BoJ earlier today with a 10 bps hike, in line with market expectations after it was rumored that they would tweak policy last week.
• The BoJ has, with barely no exceptions, leaked all their policy moves to the press before actually moving the needle, and dynamics post the meeting is nothing less than a classic “buy the rumor sell the news”.
• It looks like markets had hoped for some clarity on the path for the policy rate, which they weren’t given this morning (more on the BoJ meeting here).

• Vladimir Putin’s election victory is seen as a result of not just rigging, but also due to many Russians not seeing an alternative.
• The ongoing war in Ukraine or the declining non-war economy is not expected to significantly alter this perception.
• Putin is already focusing on securing another election victory in 2030.

• A tight race between two less than popular presidential candidates, makes for a campaign that will be nasty, brutish, and long.
• A Washington distracted by the election and domestic issues provides an opening to rivals such as North Korea, Iran, China and Russia to embark on mischief-making.
• Whoever wins, “America First” foreign economic policy will be here to stay, and Asia will have to learn to deal with this new reality. 

• Canada’s CPI inflation rate in February 2024 was 2.78% year-on-year, lower than the expected rise to 3.1%.
• Underlying measures of inflation also showed a decrease.
• This indicates a relatively subdued inflationary environment in Canada.

• The Bank of Japan has raised its policy rate to 0.0%, ending the negative interest rate policy in anticipation of achieving its 2% price stability target sustainably.
• This policy shift reflects the BOJ’s confidence in Japan’s economic recovery, underpinned by improved corporate profits, likely continued wage increases, and the formation of a more solid virtuous cycle between wages and prices.
• Future BOJ policy decisions will hinge on economic activity and price developments, global economic conditions, and the trajectory of inflation expectations and wage growth, with a continued focus on achieving sustainable price stability.

• Welcome to this week’s Great Game, where we’ll cover the Russian election as well as the ongoing turmoil in Nigeria.
• Vladimir Putin won a “landslide” win over the weekend with almost 90% of the votes.
• That was completely as expected and really no news there.

• Welcome to our UK CPI preview.
• We find the market consensus overly hawkish ahead of the release tomorrow and especially see softness in Services and Food relative to the market pricing.
• February is typically not an overly seasonally hot month for inflation, but in 2022 and 2023, February inflation printed at worrisome levels MoM.
  

• Macro Portfolio: Markets sniffing out the Chinese resurgence case. Our conviction in pro-cyclical trends have been confirmed in markets this week, and the case for a Chinese revitalisation is becoming increasingly stronger.
• The continued surge in Copper this morning is noteworthy, particularly given the buildup of inventory by China in the past few months.
• An increasing stockpile can be a positive indicator, especially if it results from a deliberate effort by China to restock in anticipation of an economic stimulus.

• Happy Sunday from Sunny Copenhagen and welcome to our flagship editorial! Is the business cycle dead?
• It is a fair question to ask after what seems like years of recession chasing once again ending in tears for the macro bears.
• This sublime graphic created by the great Lee Coppock is exceptionally telling.

• Theories to explain gold price movements have a long history.  Since the GFC, gold has increasingly become a proxy for rising risks of sovereign debt default and fiat money debasement. 
• Floating exchange rates made gold prices very sensitive to changes in US monetary conditions via a robust inverse relationship lasting until the GFC when new theories began to emerge.
• There are numerous buyers augmenting gold demand, including central banks, retail investors and hedge funds.  Weaponisation of the US dollar has increased the attraction of gold in international reserve management. 

• Gold and Bitcoin prices both remain massively supported by easing financial conditions and a bunch of liquidity in the market.
• While the Fed Funds Rate remains high at 5,5% – liquidity conditions in the market is what really matters for both safe haven assets.
• Meanwhile, J.P. Morgan announced that gold is their number one pick in the commodities market. According to them, the price has room to rise towards $2.500.

• The past week saw insights on Singtel (ST SP) and Optus, Jollibee Foods (JFC PM), MK Restaurants Group (M TB) and Agung Podomoro Land (APLN IJ).
• There was also a thematic insight looking at the rise of BNPL, a sector piece on APAC Luxury, and 14 stocks to own in Thailand from Dr Andrew Stotz, CFA.
• The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

• I’ve promised to keep updating my asset allocation tables every couple of months – and, on cue, here they are!
• They come in two guises. The first, below, is my overall take on the range of asset classes. There aren’t any changes this time. I’m still wary of equities, especially US equities, though, paradoxically, if I must own US equities, I would rather own the really big mega-cap tech names.
• I have a neutral position overall in equities, which implies a 60/40 equities/bonds balance, which hasn’t changed for a while – I wouldn’t be racing to put even more money to work in equities. 

• The central bank outlook looks surprisingly uniform as the market has homed in on June as the first timing for the cutting cycle from most major central banks (except the BoJ).
• Markets feel certain that the SNB and the ECB cuts in June (we agree), but Fed, RBA, BOC and BoE pricing is closing on 50/50 calls after a series of sticky inflation numbers from North America.
• The Fed is priced hawkishly relative to the 75bps dot plot for 2024, while the ECB is the most dovish central bank in forward pricing for 2024 but yet falls short of the 100bps hinted by the Greek member Stournaras last week.

• Last week we wrote about the price action in commodities and the week ended in some strong gains across the space.
• Our portfolio remains tilted strongly towards cyclical / inflationary bets such as materials and crude.
• For the whole portfolio click here: Steno Research Portfolio.

• In the final print, headline EA inflation was confirmed as slowing by 0.2pp to 2.6%. The 0.1pp of upside from the flash was genuine and even worse in services.
• January’s divergence in the underlying inflationary impulse was resolved with clustering nearer 2%, potentially consistent with a sustainable return to the inflation target.
• Lower energy costs may flatter the picture, while strong services inflation suggests wage growth remains too high. We still see the ECB’s first cut rolling to September.