Market movers today
Focus today is on the euro area flash HICP figures for February. Country inflation data have surprised on the upside this week and suggest a renewed uptick in headline inflation to 8.8%, with core inflation likely marking yet another record high from January’s 5.3%. With the economy and labour market holding up better than expected, ‘stickily’ high core inflation could remain a worry for ECB for some time yet and markets have already started to price in more rate hikes. We also get the ECB minutes from the February meeting.
Otherwise it’s a very quiet day with only US initial jobless claims on the radar. These are running at a low level adding to the picture of a strong US labour market.
In the Nordics, we get Danish currency reserve data this afternoon.
The 60 second overview
US: ISM manufacturing rose to 47.7 in February and thus remains in contractionary territory but perhaps more interestingly, the prices paid sub-index jumped to 51.3 from 44.5, which could suggests that producer prices are rising again, albeit at a slow pace. The employment sub-index fell below 50, but that is unlikely to deter the current view of other indicators of a strong US jobs market.
Fed: Fed members appear comfortable with the latest tightening in financial conditions, as Kashkari continued the recent hawkish comments by flagging upside risks to his December terminal rate forecast of 5.25-5.50%. Atlanta Fed’s Bostic was more moderate and only saw two more 25bp hikes, yet he emphasized that rate cuts were off the table ‘well into 2024’, largely in line with our view.
Germany: German inflation unexpectedly rose in January to 9.3% from 9.2% despite a further drop in energy price inflation.
Equities: Equities had a bit of roller-coaster day yesterday with massive outperformance from Asia and Asian/China related stocks. Yesterday yet another day with high inflation/price prints (CPI in Germany, and ISM in US). Hence yet another day with the overheating theme dominating and higher yields taking the optimism away from equity investors. However, still a day where materials, industrials and financials outperformed while utilities underperformed. In US yesterday, Dow +0.02%, S&P 500 -0.5%, Nasdaq -0.7% and Russell 2000 +0.1%. Asian markets are mixed this morning. The same goes for European and US futures where the growth-intense indices are lower and value intense are higher.
FI: The market continues to push the terminal rate from both the Federal Reserve and ECB higher on the back of stronger economic data. Hence, the terminal rate by the Federal Reserve is now at 5.5%, while the ECB is at 4%. This is also reflected in the government bond yields that are moving higher.
FX: EUR generally rallied yesterday on the back of rising yields in the Euro Area, as inflationary pressures seem to persist, implying increasing expectations for ECB’s terminal rate. Further, strong PMIs from China (anticipated positive spill-over effects likely larger to Euro Area economy relative to US) sent EUR/USD well above 1.06. EUR also appreciated rather significantly against SEK, NOK and GBP.
Credit: Though European equities closed in red, credit indices managed to tighten marginally, with iTraxx Xover closing 1.5bp tighter and Main 0.3bp. Primary took a breather, with only a few issuers tapping the market. However, CaixaBank showed that high-beta issues can still be absorbed as they brought a PerpNC6.5 AT1 to market, which was more than 3x oversubscribed.
