Market movers today
A rather quiet day in terms of data, and hence, focus remains on central banks with a number of monetary policy announcements and several ECB speakers scheduled.
The Swiss National Bank is the first to announce their decision, and despite the turmoil in the country’s banking system, we and consensus expect them to hike the policy rate by 50bp to 1.50%.
Norges Bank comes next, and we expect them to hike the policy rate by 25bp to 3.00% as they have been signalling.
The Central Bank of Turkey rate decision is also due today and market consensus is for ‘on hold’.
Lastly, we expect the Bank of England to announce their final 25bp hike in the afternoon, bringing the Bank rate to 4.25%. After an upside inflation surprise yesterday, markets are also more convinced and the hike is fully priced in (see also Bank of England Preview – Final hike in store, 17 March).
On data front, we get US home sales for February and euro area preliminary consumer confidence for March.
The 60 second overview
Fed: As widely expected, the Federal Reserve hiked rates by 25bp last night. In line with our expectations, no changes were made to the QT, and the 2023 median ‘dot’ was unchanged at 5.1%. That said, both the statement and Powell’s comments were tilted to the dovish side, highlighting that the ‘Recent (banking sector) developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation’. US Treasury yields declined and EUR/USD ticked higher towards 1.09 as a response, but equity markets were under pressure after Yellen commented that the US is not considering a ‘blanket insurance’ for bank deposits. For now, we stick to our call of a final Fed hike in May, and no rate cuts through 2023. Going forward, we will closely follow the upcoming macro and bank lending data, which will provide first concrete insights into how the uncertainty has affected the real economy. See our full Fed review: A cautious 25bp hike, 22 March.
ECB: President Lagarde delivered a fairly balanced speech at the ECB watchers conference, stressing that the central bank will adopt a robust data-dependent approach that allows it to respond to inflation risks as needed, but also aid financial markets if threats emerge. She also repeated that if the ECB’s baseline holds there will be more ground to cover in terms of future rate hikes – a message mirrored by comments from Bundesbank President Nagel earlier that ECB is not yet done raising rates. Lagarde said officials will keep a close eye on the banking sector in the next weeks and months to see whether firms are becoming more reluctant to lend. Markets have now repriced the ECB peak rate back to 3.5%. As more time lapses (without negative news on the banking turmoil), more focus will return to macro data – which still warrants further repricing higher in our view.
FI: There was a solid rally in US Treasury bonds after the FOMC meeting. The Federal Reserve raised rates by 25bp as expected, but signaled that the problems in the US banking sector could dampen the need to do more. However, they remain committed to bringing down inflation and are confident that raising rates should not deepen the current problems in the US banking sector. 2Y US Treasury yields dropped 23bp, while 10Y Treasuries dropped 18bp.
FX: The USD sold off yesterday. It started before the FOMC meeting and continued after the 25bp hike was announced and during the press conference. EUR/USD rose to around 1.09 and USD/JPY fell to around 131. Scandies failed to benefit from the weaker USD, which likely reflects the setback in equities.
Credit: Credit markets were in a wait-and-see mode ahead of the Fed decision last night, with iTraxx Main broadly unchanged at 90bp (-1bp) and Xover at 470bp (-2bp). The AT1 market saw further stabilisation with prices generally increasing again. Meanwhile, UBS launched a tender offer totalling EUR2.75bn in its recently issued senior HoldCo bonds at the reoffer price, in what seems to be a move to please credit investors.
Nordic macro
We expect Norges Bank to hike the policy rate by 25bp to 3.00% as it has been signalling. We also expect the bank to signal a further hike, most likely in June. This will be reflected in the policy rate path in the new monetary policy report, which will probably also show a possibility of a third hike in late summer/autumn. The most interesting part will be to see how NB will balance the risk of inflation from a weaker NOK vs. the current risk in the financial system.
Yesterday it was communicated that Riksbank’s Henry Ohlsson will retire early, in June, whereas his current term ends in 2026. He started in 2015 and finally, you could say, the consistent rate hawk got his way. There is no drama in this, in our view. The chairman of the General Council said he will propose that there will be no replacement of Ohlsson, though the formal decision will be taken on 21 April. The new Riksbank law stipulates that there will be only five Board members from 2028 at the latest. Today, Erik Thedéen gives a speech with the interesting title “My view on monetary policy” (15:00). The mantra so far is that they are data dependent, but of course they are concerned with the uptrend in core inflation accelerating.
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