Market movers today
Markets will continue to digest gloomy Chinese PMI figures released over the weekend.
A range of Manufacturing PMI figures for April are out in Europe and Scandinavia, as is the EU Commission’s economic sentiment indicator. Business indicators have so far remained surprisingly resilient despite the headwinds from the Ukraine war.
In the US, the ISM manufacturing index is the highlight of the day.
Later this week, the FOMC meeting on Wednesday, Bank of England and Norges Bank on Thursday and Russian energy developments will remain in focus, as the EU readies another sanctions package. An emergency meeting among EU energy ministers is scheduled for today.
The 60 second overview
PMI China: Chinese PMI released over the weekend fell substantially in April as the “zero-Covid” lockdowns hampered not only manufacturing production but also service production. Manufacturing PMI fell from 49.5 to 47.4 and service from 48.4 to 41.9 – the latter being the lowest since February 2020.The statistics bureau said that the drop both reflected declines in de supply and demand. Both domestic and export orders fell sharply. The off-shore yuan weakened sharply on the numbers. See this FT story discussing the longer term economic and political impact of the Chinese zero-Covid poliy.
Oil: EU energy ministers are due to hold at an emergency meeting today to discuss the implications of the Russian decision to cut off the gas deliveries to Poland and Bulgaria last week. It seems that an oil embargo on Russia will be on table as Germany have now confirmed that it can replace Russian crude deliveries by late summer according to AP. Hence, it now seems very likely that we will see a gradual phase in of an EU oil ban. Brent oil rose above USD 110 a barrel on Friday as the rumour of an EU ban started to emerge. However, the weak Chinese PMI data have pushed priced down towards USD 106 USD a barrel this morning. OPEC+ will meet this week. But despite a possible EU ban on Russian oil and falling Russian oil production any deviation from the strategy of lifting oil production gradually is not expected. OPEC will be pointing to the negative demand effect from the lockdowns in China. That said, OPEC is already struggling to deliver the extra oil it has pledged in previous months.
Euro area inflation: Flash HICP reached yet another record high of 7.49% in April (from 7.44% in March). Energy price inflation slowed down but with a 3.8pp contribution energy remains by far the biggest driver of headline inflation. Food price inflation on the other hand is still on a steep acceleration path up 6.4% from 5% in March and importantly core inflation reached a new record high of 3.5% up from 3% in March. Headline inflation might have reached a peak if commodity prices are stabilizing. However, underlying inflation are still seeing a clear upward pressure where further upside risks loom from food prices and tentative signs of wage growth picking up.
FI: A swath of European data out on Friday morning led to mostly sideways trading, until the resilient economic performance in Q1 (of 0.2% qoq) and core inflation (3.5% yoy) gave clear signal of ECB on route to hike in July at 11:00CET. However, we remain more concerned about the medium-term headwinds for the euro area. Later in the afternoon, a US lead sell-off with UST selling off by 10bp, led to additional transatlantic spread widening to stay around 200bp – and further spread widening is expected. However, after the weak Chinese PMI during the weekend we expect rates to decline from the morning session. Bund spreads had a very volatile day, albeit ended virtually unchanged on the day after having widened intraday by 4bp.
FX: EUR/USD continues to hover around 1.05. We expect the Riksbank pivot to be supportive of the SEK in coming weeks. NOK was the biggest loser among majors last week posting a loss of almost 5% vs the USD.
Credit: Credit continued the risk-off mode this Friday. iTraxx main widened 1bp and Xover widened 9.8bp. This marks the 8th consecutive session of spread widening and takes spreads to the widest levels recorded this year. Main is now booked at 90.2bp and Xover at 427.6bp.
Nordic macro
Like the rest of Europe, Swedish manufacturing PMI’s are released today. The trend remain downwards sloping and expectations are for a modest decline in April, albeit remaining at strong levels. Perhaps even more interesting are the developments of the different sub-indices, for example delivery times/prices and new orders, as these could provide crucial information on both the supply (supply disruptions/cost pressures) and the demand side.
