Market movers today
In the US, markets will pay close attention to the JOLTs job openings, which have been a good leading indicator for wage growth.
German industrial production figures for January are on the agenda. Factory orders showed a small rebound at the start of the year, but truck toll mileage and electricity consumption point to downside risks.
The final euro area Q4 22 GDP figures could see a small downward revision from the earlier estimate of 0.1% q/q, due to a deeper contraction in Germany.
ECB’s Lagarde and Riksbank Deputy Governor Breman will be on the wires.
Bank of Canada is widely expected to leave policy rates unchanged at today’s monetary policy meeting leaving the key policy rate at 4.5%. Bank of Canada was one of the first central banks to initiate the post pandemic hiking cycle and has also been among the very first to signal a pause. Markets will not least look for signs that Bank of Canada could reinitiate hikes amid a continued strong labour market and other central banks sending hawkish signals as of late.
The 60 second overview
Powell shakes up markets: Fed chair Powell managed to shake up markets at yesterday’s Senate testimony. Powell not only indicated a higher eventual peak in policy rates amid the economy faring better-than-expected but he also signalled a willingness to re-accelerate the hiking pace back to 50bp increments should data warrant this.
Notably, Powell highlighted that there is “little sign of disinflation thus far in the category of core services excluding houses” which illustrates that the Fed is concerned with respect to underlying inflationary pressures. Powell also indicated the need for a softer labour market and that although wage growth has eased slightly in recent months it remains uncomfortably high relative to productivity trend growth and the 2% inflation target.
Markets reacted strongly with US FI selling off aggressively. Markets are now leaning more towards a 50bp March hike than the 25bp hike deemed a done deal not many weeks back. With the Fed’s silent period beginning on Saturday the next couple of sessions’ US releases will be unusually important for the short-end of the USD curve as this could pivot Fed one way or the other. While Friday’s nonfarm payrolls naturally marks the highlight we stress the JOLTS job openings data later today and tomorrow’s initial jobless claims could also prove unusually important. During the Fed’s silent period we get US CPI (14 March) which naturally also holds the importance to shift market pricing in either way.
Markets now price a policy rate peak around 5.60% in September later this year. The slope between the 10Y and 2Y US Treasury yield has now inverted beyond -100bp which is the most since 1981 highlighting the sharp recession signal that bond markets continue to send.
Markets. Price action from yesterday has generally extended into the overnight Asia session with most notably US yields continuing to move higher. Most major equity indices and G10 equity futures are trading in red territory this morning while the USD has gained further. Amid the rise in global yields USD/JPY has moved sharply higher and is now trading at the highest levels since December just two days ahead of the eagerly awaited Bank of Japan meeting.
FI: It was a volatile day in rates markets amid inflation expectations collapse in the Eurozone and a hawkish Powell.
FX: The USD strengthened sharply and across the board on the back of the hawkish Powell testimony with EUR/USD moving closer to 1.05 and USD/JPY toward 138. SEK and NOK continue to underperform and USD/SEK soared all the way back to year highs at 10.75.
Credit: Tuesday saw some profit taking in the overall corporate bond market after solid performance in recent days. iTraxx Main widened 1bp to 75bp while iTraxx X-over widened 8bp to 393bp. The primary market remains busy with several companies looking to issue new bonds amid high investor demand.
Nordic macro
Riksbank’s Breman speaks about the economy and monetary policy at 08.45 CET. Given the recent high core inflation in the Euro zone, hawkish ECB comments and signals about accelerating Swedish food inflation we expect her to emphasize the need for additional forceful hikes at the upcoming meetings (i.e. 50 bps and 25 bps) in April and June to combat rising Swedish core inflation.
Maklarstatistik releases country-wide residential property price data for February. It should show a modest stabilization as seen in other data.
