Market movers today
The week starts off with a thin data calendar, German Ifo Index will be released for April, consensus is looking for a modest rise following the upbeat PMIs last Friday.
Later in the week, the focus turns to central banks. We expect Riksbank to hike rates by 50bp on Wednesday and Bank of Japan to make no changes on Friday (BoJ Preview, 21 April).
On the data front, Q1 GDP flash estimates will be released for euro area on Friday, and the US and Sweden on Thursday. On Friday, preliminary inflation data from Germany, France and Spain will also give us the first hints on how euro area inflation developed in April.
The FOMC has already entered the blackout period ahead of the meeting next week, but ECB’s Panetta will be on the wires today.
The 60 second overview
It has been a mixed opening in the Asian equity markets with some modest gains in the Japanese equity market and modest losses in the Chinese and Hong Kong equity markets. US Treasury yield declined modestly this morning after having risen on Friday on the back of stronger US PMI data.
ECB’s Wuncsh stated in a Financial Times interview that he could see ECB go to 4% and that ECB had to tighten monetary policy until they saw wage growth and core inflation decline. This supports our expectations that 4% will be the peak for ECB.
The cash balance at the US Treasury rose to the highest amount since March and is currently at USD 280bn. It was just USD 99bn on April 13. The recent rise was due to more tax payments rolling in, and help push the time limit further out before the Treasury runs out of money in order not reach the debt limit. Furthermore, the Republicans are looking to pass a bill that will increase the debt ceiling by USD 1.5tn, but President Biden is against the plan.
Ireland was upgraded on Friday by Moody from A1 to Aa3 and the outlook is stable. The upgrade was driven by the solid improvement in the public finances and reduction of the debt.
We have lifted our GDP forecast for 2023 to 6.2% from 5.5%, see China Macro Monitor – 2023 growth revised up to 6.2%, 24 April. It mainly reflects that Q1 was stronger than expected and thus provides a higher base for the year. However, we see growth momentum moving lower from here but still stay above potential growth for the rest of year. We see more pent-up demand in consumption, property and manufacturing investments. The recovery is still in its’ early phase, though, where uncertainty and jitters over the sustainability is likely to remain. We expect the government will add more stimulus if needed to put the recovery on a firmer footing. For 2024 we have lowered the forecast from 5.2% to 5.0%.
Equities struggled for direction with bunches of earnings, a shift of tail risk focus from banks to debt ceiling and a difficult batch of macro data not providing much help either. S&P 500 closed up 0.1% and Stoxx 500 0.3%. With a lack of direction, defensives took the lead with staples and health care among the better performers. In fact, defensives beat the tape throughout the week with staples doing particularly well. US futures are a tad lower this morning too.
FI: US Treasury yields rose on Friday after stronger than expected US PMI data. 10Y Treasuries ended up 4bp higher and 2Y Treasuries ended up 3bp higher. However, the levels is still much lower than before the problems in the US banking sector, where 2Y US Treasury yields were up at 5% compared to today’s level of 4.18%. This morning we have seen a modest decline in US Treasury yields in Asian trading hours.
FX: It is wait-and-see for FX markets before big central bank monetary policy meetings the coming weeks. EUR/SEK trades in the 11.30-35 range before the Riksbank meeting this week. USD/JPY holds steady close to 134 before Bank of Japan meets on Friday – new governor Ueda’s first meeting. And EUR/USD trades in 1.09-1.10 range before next week’s ECB and Fed meetings, where Fed may deliver the final hike of this cycle. NOK needs to clear this week’s announcement on May’s fiscal transactions by Norges Bank before attention turns to next week’s meeting.
Credit: In an overall quite muted session, credit markets recovered somewhat from Thursday’s sell-off, with iTraxx Xover 2bp tighter and Main 0.4bp. Primary market activity was subdued with only a couple of issuers coming to the market.
