Market movers today
Today, we will get US April retail sales and industrial production data. Particularly retail sales is interesting to watch as we keep a close eye on how US consumers are coping with the erosion of purchasing power resulting from high inflation.
Otherwise, data calendar is light but we have a bunch of central bank speakers in the wires. In the US, we will hear comments from Fed’s Bullard, Kashkari, Powell and Mester. ECB’s Lagarde and Riksbank’s Ohlsson are also due to speak today.
The 60 second overview
Gas: According to revised EU guidelines, EU energy companies can continue to buy natural gas from Russia without breaching sanctions even if it requires opening an account in Gazprombank. It should end near-term possibility of disruptions to EU gas flows as next round of payments to Russia is due.
Oil: Oil prices climbed higher yesterday with Brent closing in on the USD115/bbl mark – the highest since March. Strong demand is pushing prices higher. In the US, the driving season nears, which has led to a surge in diesel and gasoline prices. China eyes an end to lockdown in Shanghai, which would trigger a rebound in oil demand.
Fed: New York Fed President John Williams yesterday affirmed other Fed members’ position that inflation in the US is running far too high. He further supported additional 50bp rate increases at upcoming meetings in a push to get the real interest rate back to zero next year.
FI: It was a session of two tales. A weak morning with rates selling off by 5-6bp, but a similar strong rally in the afternoon left rates slight lower on the day. Most countries recorded a minor rally in the 10y+, but most observed in Germany, i.e. wider spreads. However, as the short end sold off, we did see some flattening of the curves. The shorter dated papers sold off by 2-3bp yesterday, reflecting also that Villeroy said that he expects a ‘decisive June meeting, and an active summer’. July pricing does now point to 28bp. Bund ASW was again volatile and ended 2bp lower at 76bp.
FX: EUR/USD was relatively quiet yesterday trading slightly higher to 1.043 but we still expect fundamentals to take the cross down towards parity over the coming 12M. EUR/GBP moved back below 0.85 (GBP/USD back above 1.23) but we expect GBP to weaken in coming months. CAD, AUD, NZD and GBP were the winners yesterday, appreciating 0.5-0.6% versus USD. EUR/CHF, EUR/NOK and EUR/SEK all rose yesterday.
Credit: Credit markets began the week in slight risk-off mode, following along the soft tone in European equities. ITraxx Main widened by 1.5bp to close at 93.5bp, while Xover widened 5.9bp to close at 451.9bp. On the other hand, the tone in primary markets was supportive, with European Pulp & Paper company UPM printing a 7Y green EUR benchmark. The deal was well bid at around 3x oversubscription and the spread ended up printing 22bp tighter than the IPT of +110bp.
