Market movers today
The US-China trade war will continue to be the key theme in markets, see more below.
On the data front we expect Swedish CPIF inflation for April to be 2.1% y/y (consensus 2.0% y/y), see more next page.
In Germany, the ZEW survey is due to be released. It has ticked higher in recent months, pointing to higher expectations. The NFIB small business optimism index in the US is expected to show a small increase for April from 101.8 to 102.0.
Overnight (to Wednesday), we get, among others, Chinese industrial production.
Selected market news
It was a terrible day for risk sentiment globally yesterday with major US equity indices down 2.4%. European equity indices recorded only around 1.2% losses. The government bond markets reacted with a strong rally (lower yields), where the US recorded the biggest decline of 6.6bp to 2.40%. European government bond yields declined 2.6bp to -0.07%, just a whisker higher than the multi-year lows reached in late March. Noteworthy, the Fed fund futures took a took 6bp out of the Fed pricing until the end of the year, which means the markets are now fully pricing a rate cut by the end of the year.
The catalyst for the dreadful day for risk is attributed to the US-China trade war escalation as Trump continued to lash out at China in a string of tweets and China came with a retaliation response, see US-China Trade: Back in the tit-for-tat spiral . We are increasingly concerned that the two sides are too far from each other to reach a deal in Q2. The trust between the two sides has been damaged and they both seem to dig in on issues that are important for both countries. For example, on the issue of the need to change Chinese laws. On Friday, China’s chief negotiator Liu He said China will not back down on matters of principle. The next key thing to look for is whether Xi and Trump talk on the phone at some point and try to get talks back on track. However, our concern is that it will require financial stress to create the necessary pressure to get the deal done.
Overnight, the sour risk sentiment continued in Asia, despite Trump saying that he will meet Xi at the G20 summit in June.
In Norway, mainland GDP was at first sight slightly weaker than expected, growing 0.3% q/q in Q1 (Danske: 0.4 %, consensus: 0.4 %).The figures were partly affected by negative supply-side effects in power production and fisheries. Importantly, Norges Bank will probably consider the weakness as temporarily (as stated after last week’s rate meeting). The monetary policy report from March assumed +0.6 %, However, the details revealed a better result than the headline would suggest due to a revision of Q4 18 DP (to 1.1% from 0.9%) and strong employment growth of 0.48% q/q, which is noteworthily higher than Norges bank’s projections. We see Norges Bank on track to hike rates in June.
