Both the ECB and Norges Bank are expected to leave rates unchanged

Day ahead: Both the ECB and Norges Bank are expected to leave rates unchanged today. The main data releases are Q4 CPI in New Zealand (NZD) and Dec CPI in Japan – both overnight. The World Economic Forum continues in Davos (until tomorrow).

EUR: Having delivered a ‘comprehensive package’ of measures at the September meeting and the formal commencement of the ECB’s second strategic review in its 20‐year history due to take place, most economists do not expect any changes to policy at today’s ECB meeting. Data released since the previous meeting have been positive and consistent with the slightly more optimistic tone struck by Lagarde in December regarding the economic outlook. The Q&A will likely be dominated by questions regarding the strategic review, but markets are not optimistic about learning anything concrete other than some more information on the expected timeline and processes.

NZD: Headline CPI inflation is expected to pick up to 1.8% y/y in Q4, though would still be slightly below the RBNZ’s target. Within the detail, the key number to watch is nontradables inflation, which is seen as a good proxy for domestically generated inflation pressure. This measure has been trending steadily higher for four years and in Q3 stood at an eight year high (3.2% y/y). OIS price in almost no risk of an RBNZ cut at the February meeting, though there is 10bp of further easing pried for the year.

The NZD/CHF reached a double peak at the end of the year, which was confirmed a week ago. The exchange rate remains below the resistance, the area around 0.64. Sentiment has been bearish since the beginning of the year. If the decline resumes, immediate support is 0.6350 followed by the zone around 0.6300.

JPY: After the surge in the previous week, Japanese investors were small net buyers (JPY0.2trn) foreign bonds in the week to last Friday. Having been very neutral through December, capital flows are again solidly outward. December CPI data (tonight) are expected to show a slight pickup in inflation (0.7% y/y from 0.5% ex‐fresh food), though the longer‐term trend is flat to lower.