Market movers today
We start the week in a quiet fashion on the data front amid markets digesting the take-aways from China’s National People’s Congress over the weekend.
In the euro area, retail sales for January and Sentix investor confidence for March are on the agenda. After the sharp decline in retail spending in December, it will be interesting to see if the downtrend trend has continued at the start of 2023 as real income losses are taking their toll.
In Sweden, Statistics Sweden said on Friday that GDP Q4 declined 0.5% y/y seasonally adjusted, a smaller drop than the 0.9% y/y initially reported and more in line with expectations. The correction is due to late incoming reports affecting net exports. A new set of national account data will be published today at 08:00 CET.
Later this week, the primary highlight will be the US jobs report and Bank of Japan meeting on Friday (more below), with markets still caught between the overheating vs. soft-landing narrative (see Research US – Fed finds comfort in retightening financial conditions, 3 March). We also have rate decisions in Australia (Tuesday) and Canada (Wednesday) where we look for a 25bp hike and an unchanged decision, respectively.
The 60 second overview
Markets: sentiment this morning is dominated by the modest, revised growth target in China highlighting a diminished likelihood of more stimulus. Not least commodity prices are trading to the heavy side with industrial metals and oil prices reacting to the slightly weaker demand outlook. US Treasury yields have come a few bp lower overnight while the CNY, AUD and NZD are among the natural underperformers in FX space.
Modest Chinese growth target: At the opening of China’s National People’s Congress yesterday, China announced a new growth target at 5.0%. It was in the low end of expectations, which ranged from 5-6% (we looked for a 5.5% target). The modest growth target is probably a reflection that: a) after a year of substantial undershooting of the target in 2022 (3.0% vs a target of 5.5%), China has decided on a target that it feels confident it can deliver, b) China wants to leave room for new headwinds such as a possible global recession, and c) we are not likely to see a lot of stimulus. The latter is probably the most important signal from the announcement. The signal does not change our expectation of China reaching 5.5% growth this year as we already have indications that growth came off to a strong start in Q1. The announcement may disappoint some investors but on the other hand, it could ease some fears of a strong inflationary impact from China. Markets have reacted moderately with Chinese offshore stocks down 0.3% and the USD/CNH broadly unchanged from Friday’s levels.
US data: Friday’s ISM services report showed a slight decline in the main index from 55.2 to 55.1. That said, at these levels the service consumption engine of the US economy continues to do far better than what we believe the Federal Reserve can feel comfortable with amid above target inflation. In addition, the details revealed a further rise in the new orders sub index to a very elevated 62.6. Also, the employment index continued to move higher hitting the highest level since December 2021 (54.0). The prices paid eased slightly but remains far too high for policy makers’ liking at 65.6. All in all a data release supporting the notion that Fed has more work to do in the fight against elevated inflation.
Bank of Japan (BoJ): this week, outgoing Governor Kuroda has his last chance to surprise markets, and perhaps make life easier for his successor Ueda, when the BoJ has a monetary policy meeting on Friday. Changes to monetary policy by rate hikes or tweaks to the YCC seem less likely for this meeting, as Kuroda clearly has communicated that he believes the current inflationary pressures are temporary and the BoJ needs firmer evidence of persistent price pressures before tightening policy. However, we still find it likely that the BoJ has to at least tweak the YCC at some point during Q2.
FI: Last week was once again dramatic in the global fixed income markets with a solid rise in bond yields during the first four days of the week. On Friday, yields declined and the week ended only modestly higher. 10Y US Treasuries were testing 4%, but fell back below 4% on Friday. 10Y German government bond yields ended 12bp higher at 2.70%.
FX: SEK and NOK had a bad last week but both edged higher after the European session closed on Friday. EUR/SEK starts the week in the lower end of the 11.10-20 range and EUR/NOK have moved closer to the 11.00 mark. The dollar ended last week on a weaker note vs both EUR and JPY. USD/JPY is back below 136.
Credit: Very strong sentiment on Friday where iTraxx Xover tightened 19bp, closing in 397bp, and Main tightened almost 4bp to 76bp. In primary, Pandora priced its inaugural sustainability-linked bond where terms are linked to using 100% recycled gold and silver within two years.
