Market movers today
(Online) peace talks between Ukraine and Russia might resume today. However, we are sceptical an imminent deal will be found, see Research Russia-Ukraine: Talk is cheap – we expect no immediate breakthrough in peace talks but market focus to shift elsewhere, 31 March.
In Europe, the highlight will be the euro area HICP inflation figures for March. Country figures point to another record high headline rate of 7.4%, while core inflation likely accelerated beyond 3%, piling up inflation worries for ECB.
Markets will also keep a close eye on the US non-farm payrolls report for March released today. We look for a decent report with jobs growth around 450k, but the unemployment rate and wage growth will also be in focus to gauge underlying inflation pressures. Later in the day, the ISM manufacturing index for March will show how factories are coping with high prices and fresh supply chain problems.
The EU and China will hold a virtual summit. While EU-China economic ties remain critical to both sides, geopolitical interests are diverging ever more sharply and the EU-China investment treaty agreed in 2020 remains a distant prospect.
In Scandinavia, March PMIs are released in Sweden and Norway and we expect Norwegian unemployment to fall from 2.1% to 2.0% in March.
The 60 second overview
Oil prices fell after US action and yesterday’s OPEC meeting: As widely expected, OPEC agreed yesterday to increase oil production in May only modestly, by 430 000 barrels per day. The decision is in contrast to the US announcement to release up to 180 million barrels of oil from its Strategic Petroleum Reserves (SPR). Oil will be released at a pace of 1M barrels per day over a period of six months, which will cover roughly 1/3 of the estimated drop in Russian supply. Yesterday, we published a comment on the US decision, arguing that despite it being the largest SPR release in history, it is unlikely to change the narrative for elevated oil price levels for the upcoming months, read the one-pager at: Oil comment – Oil prices to remain elevated despite the SPR release, 31 March. Reflecting this, Brent prices continue to trade clearly above pre-war levels. Today, IEA countries will reportedly meet to discuss possible reserve releases in its other member countries.
Confusion over European payment of Russian gas: The Russian government has demanded that Western European countries should pay for Russian gas in Roubles, which has been met with resistance from the West, raising fears that Russia would stop gas deliveries. According to the German government, Russian president Putin told German Chancellor Scholz that payments could continue to be in euros. This was not confirmed from the Russian side and earlier yesterday, the Italian government had been told that western countries would have to open a euro-denominated account in Russia to make payments. Natural gas prices first fell but ended the day 4% higher on the news.
Equities: Equities went lower yesterday led by cyclicals and growth stocks while implied volatility was higher. However, it was not the type of moves we saw back in early March, and market moves still fit well with a classic post correction recovery. Equities have now regained most of the lost ground and from here on it will be choppier and slower. Following a classic playbook would still suggest more upside in the coming months led by cyclicals with vol coming further down especially in Europe. The drop in equities yesterday was rather synchronised across sectors and regions which is also a sign that uncertainty is coming down and investor are making adjustment rather than going all in or all out. In US yesterday, Dow -1.6%, S&P 500 -1.6%, Nasdaq -1.5% and Russell 2000 -1.0%. Asian markets are mixed this morning. Futures in Europe are flat while US futures are slightly higher this morning.
FI: Yesterday’s rates markets rallied hard after the inflation surprises on Wednesday from Germany and Spain which was followed by French CPI only surprising marginally on the upside, while the Italian CPI came in lower than expected (but still at very high levels). This was also combined with oil lower (on release of US oil reserves) left the EUR inflation forwards 8bp lower in the 2y2y, now at 2.45%. At the same time, German inflation linked bonds (DBRI 2030) performed 4bp to -2.19%.
FX: NOK came under severe pressure yesterday on both SPR-release news and Norges Bank’s announcement that they will become a (record large) NOK seller of NOK2bn per day in April. EUR/NOK rose from 9.56 to nearly 9.74. USD/JPY traded mostly sideways yesterday and ended the day below 122 after a few action-packed days for JPY.
Credit: Credit markets were relatively unchanged yesterday as we approached quarter end. The main index was unchanged at 73.0bp while ITraxx Xover was wider by 1.4bp to 338.4bp. Cash bonds too saw only modest movements, with the spread of investment grade bonds closing 0.7bp tighter at 63.3bp while the high-yield bond spread widened by 5.5bp to 330.9bp.
Nordic macro
March manufacturing PMI is set to look quite OK, remaining in the 55-60 range. Preliminary prints from the German PMI and the Swedish NIER confidence survey suggests manufacturing is still growing at a strong pace.
