Market movers today
The Ukraine-Russia situation continues to be a market focus, especially the mobilisation of Russian forces near the Ukrainian border, and the social media reports of skirmish on the Ukrainian border overnight, but these are unconfirmed and overnight market session has already reversed the initial risk-off. Yesterday’s signs of de-escalation was the predominant view in the market session yesterday. However, the situation remains volatile and late yesterday US officials also denied the claims of Russia pulling back troops from the Ukrainian border.
In the US there are a couple of Fed speakers today, Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard. In Europe Lane gives an interview, and view of the general hawkish twist to ECB GC members, this should attract additional attention (15:00 CET).
Turkey’s central bank will meet today. In line with market consensus, we expect the CBRT to keep the policy rate unchanged at 14%.
Riksbank Vice Governor Anna Breman gives a speech on the current economic situation at 09:00. Here, she may explain further her arguments for entering a reservation against the decision on asset purchases.
The 60 second overview
FOMC minutes: The key take-away from the FOMC minutes was that the Fed acknowledges that the current economic situation is very different from the last hiking cycle in 2015-18 and hence why this tightening cycle is going to be different as well, as faster tightening is needed. This means both faster and more significant QT as well as rate hikes. As Fed Chair Jerome Powell mentioned during the press conference, the committee did not discuss whether 25bp or 50bp is needed at the March meeting, but just that more tightening is needed. We would like to emphasise, however, that we received another higher-than-anticipated inflation print after the January meeting and we now expect the Fed to hike by 50bp in March and a total of 200bp over the course of the year, see Fed Update: We expect a total of 200bp rate hikes this year starting with 50bp in March, 14 February 2022.
Nordic energy dependence: We have taken a look at Nordic energy dependence. We find that energy inputs vary significantly across the Nordics. The Danish manufacturing sector runs on far less energy compared to an OECD average. The Norwegian one runs on a lot more, while Finland and Sweden are more average. Looking from the demand side, the picture is somewhat the same. For more see: A helicopter look at energy dependence, 17 February.
EU ruling: Yesterday the EU won a case against Poland and Hungary in a dispute about distribution of EU funds. With the verdict, EU can formally withhold EU funding to the two countries. Poland has been trying to break a compromise with EU over the past weeks, but has not managed to block this one. So we have to see what the response from Poland will be now.
Equities: Equity markets somewhat directionless on Wednesday, despite a packed macro- and Fed agenda. As the FOMC minutes did not contain any hawkish surprises, US recovered into the close. Risk on in sector performance as well, with value cyclicals in the lead. Energy, materials and industrials the best groups, probably fuelled by the strong retail sales numbers. S&P500 closed up 0.1%, Nasdaq -0.1%, Russell 2000 0.1% and Dow -0.2%. US futures point to a slight decline today.
FI: European yields ended 3bp lower on the day, amid strong US retail figures. Intra euro area spreads were mixed, with the pivotal point on the curve being the 10y point. After some very volatile days in the ASW spreads, we had a low volatility day where the 10y Bund ASW traded within 1bp.
FX: Yesterday’s session was characterised by another set-back to the USD while reflation and commodity sensitive currencies gained. EUR/USD has now rebounded roughly one big figure over the last couple of sessions bringing the cross close to the 1.14 mark. EUR/NOK has come marginally lower to 10.10 while EUR/SEK remains in the 10.50s.
Credit: A continuation of signs of de-escalation in the Ukraine/Russia stand-off was offset by more hawkish FED signals amid inflation concerns. This resulted in mixed performance in credit spreads with Main widening marginally by 0.3bp while Xover tightened 1.3bp. The two indices ended at 66.4bp and 322.9bp, respectively. IG cash spreads widened 1.8bp and HY spreads were unchanged during the day.
Nordic macro
In Sweden, Prospera’s monthly survey CET 08:00 will catch attention, even though the quarterly is given higher weight by markets and the Riksbank. The Riksbank’s current, still relaxed approach is summarised by the following quote in the Monetary Policy Report: “The overall picture of long-term expectations is that they are currently close to the inflation target but should they develop unexpectedly and persistently be too high or too low, monetary policy would need to take this into account.” Room for interpretations as to where the trigger level is; our guess is in the neighbourhood of 2.4-2.5%. Near term, the upside risks to 1Y expectations remain given the CPI forecasts, whereas impact on 5Y should be more limited.
Interesting day in Norway, starting with important information about wage and price expectations in Norges Bank’s Q4 expectations survey. A further rise in price and/or wage expectations would indicate that capacity utilisation is continuing to increase and potentially force Norges Bank into a more aggressive stance at the March rate-setting meeting. In addition, the Q1 oil investment survey will also be unusually interesting as it includes the first estimate for 2023. Given higher oil and gas prices and the tax breaks for the oil industry in response to the pandemic, we anticipate growth in oil investment of around 10% in 2023. As a result, Norway will get a substantial boost from oil investment next year. It is also time for central bank governor Olsen to give his last annual address before retiring. The content of these speeches is normally fairly structural, but in times like these, we will look closely for any signals on current monetary policy as well.
