Market movers today
- Final Service PMIs for September will be released across a range of European and Scandinavian countries as well as the US ISM services index.
- Markets will also keep an eye on any remarks from ECB President Lagarde when she speaks at 17:00 CET.
- We expect Reserve Bank of New Zealand (RBNZ) to hike rates by 25bp in its meeting early Wednesday morning, market prices around 85% probability of a hike.
The 60 second overview
OPEC+: The OPEC+ decided to stick to its July decision to increase oil production by 400,000 barrels per day, even though markets had expected an increase given the recent rise energy prices. This was not the case, however, and it supported Brent prices above USD 81/bbl after the meeting, and for example the Saudi Aramco estimates that the recent rise in natural gas prices has already supported oil demand by around 500,000 barrels per day. From now on the outlook remains uncertain, and the limited supply adds to the inflationary pressures created by the higher energy prices.
RBA: The Reserve Bank of Australia held their monetary policy unchanged in its Tuesday morning meeting, as widely expected. At their meeting last month, RBA stuck with the plan to taper asset purchases in September but also extended the QE program until at least February 2022 as the delta variant has delayed the recovery of the Australian economy. The central bank expects reopening this and next month to support a rebound in GDP growth, but it will take until H2 2022 for the Australian economy to reach pre-delta path of growth. While RBA seemed somewhat concerned about the continuing rapid rise in housing prices, the overall inflation pressures still appear muted. While market prices in the first 25bp hike already by late 2022, RBA continues to expect no hikes until 2024, and therefore we expect little support for AUD even if the central bank turns more hawkish after the reopening. Markets were little affected by the release, AUD/USD fell slightly.
Chinese property sector: Evergrande’s shares remain suspended from trading, as no further news has been released around the possible sale of its property management unit or the USD 260m debt guarantee that was reportedly due yesterday. Another property developer, Fantasia, missed payment on USD 205m bond which matured yesterday, adding to the overall stress around the sector. On its own, Fantasia is still clearly a smaller developer compared to Evergrande, as it is only China’s 60th largest based on its Q1 sales.
Equities: Global equities kicked off the week in red. Risk appetite took a beat as well, visible in the cyclical value trade changing to a defensive/value trade. Energy fared the best, along with utilities and consumer staples. The FANMAG complex, medtech and semis were hit hard, which brought Nasdaq -2.1% lower (back to the June levels). S&P a bit better off, down -1.3%, Dow -0.9% and Russell 2000 -1.1%. Implied volatility slightly higher with VIX at 23. The negative tone is mostly continuing in Asia this morning with Japan dropping -2% and thus nudging at correction territory. Optimism is creeping back in the US though, with futures slightly higher.
FI: Yields ended higher despite the sour risk sentiment with inflation swaps also slightly lower as we are heading into a pick-up in issuance this week while at the same time, ECB has started its ‘moderately lower’ purchase pace. The coming two weeks will see even higher supply with the net cash flow of more than -50bn in the coming three weeks in total. In SSA space, ESM finalised their funding for the year yesterday with a strong 3y bond supply.
FX: Our bearish NOK view has faced a challenging start to the week with OPEC+ sticking to its 400K/bbl tapering path supporting a further rise in oil prices. Compared with EUR/NOK, EUR/SEK has remained relatively stable within the 10.10-10.20 range.
Credit: The last week’s sell-off in particularly the HY segment of credit continued yesterday. Xover widened a further 5bp, which took it to 259bp and Main widened almost 1bp to close in 51bp. HY bonds widened 4-5bp on average while IG held up better and closed unchanged.
Nordic macro
Sweden: Riksbank buys SEK 1.5bn munis, 2bn T-bills, 5bn covered and 1bn linkers during the week starting Tuesday. Debt Office issues 2bn 1059 and 1.5bn 1056 on Wednesday and Kommuninvest also issues different maturities that day.
A triplet of August indicators – PVI, GDP and consumption – is released on Wednesday. Riksbank’s Jansson speaks about the economy Thursday and the Debt Office releases the September borrowing requirement that day too.
