Market movers today
Today we get IFO figures, which will shed some more light on the German growth momentum, after PMI figures yesterday further intensified the two-speed economy narrative.
In the FOMC minutes, focus will be on the banking sector turmoil and how it is seen affecting the monetary policy outlook, and any hints on the future policy rate outlook.
We will also keep an eye on UK April CPI inflation. Energy is set to drag headline inflation significantly lower. This is the first of two inflation prints ahead of the next BoE meeting where we expect a 25bps hike.
The 60 second overview
Macro: The release of US flash PMIs for May was a mixed bag. The manufacturing sector index fell below 50 again, while the service sector index rose to 55.1 – the highest level in a year.
US: Talks to solve the debt ceiling problem continued yesterday showing some progress, but no result. Meanwhile anxiety in the Treasury bills market grows with front-end bills briefly topping 6% yesterday. The market eyes 1 June as the potential X-date, when the US government risks running out of money. The yield on the Treasury bill maturing 1 June rose 2.5pp above the yield on the bill maturing 30 May yesterday.
New Zealand: Another major central bank looks done raising interest rates. The Reserve Bank of New Zealand hiked its key policy rate 25bp to 5.5% overnight and signalled an end to monetary policy tightening.
Equities: Equities retreated on Tuesday, backed by weak data. The sell-off intensified in the US session, with S&P and Nasdaq closing south of -1%. Most sectors were lower and performance was tightly bunched. Almost all cyclicals a percent lower, while defensives (energy, utilities, staples) fared better together with regional banks. VIX rose to 18.5. Europe was a little different, as real estate stocks jumped 2% and banks continued its rebound. But in sum, a pretty harsh reaction to the numbers. Futures are a tad lower again.
FI: There have been modest movements in US Treasury yields. The US Treasury curve flattened a few bp from the long end as the uncertainty regarding a deal on the Debt Ceiling increased. There were only modest moves in the EGB markets that were dominated by issuance from Germany and Netherlands as well as the new 15Y Italian linker sold through syndication.
FX: The US dollar gained ahead IFO and FOMC Minutes and continued uncertainty about the debt ceiling, while diverging flash PMIs between the euro area and the US added fundamental support for EUR/USD moving lower, below the 1.08 mark. Also CNH loses ground vs the USD. GBP eyes today’s inflation numbers. As for the Scandies there is no relief yet, with EUR/SEK in the mid-11.40s and EUR/NOK testing above 11.80.
Credit: Yesterday the credit markets were trading sideways exemplified by the iTraxx main tightening by 1bp to 82bp while the Xover index widened by 2bp to 433bp. All this happened under a continued flurry of new issues from both financials and non-financials. Noticeable deals included the Finnish nuclear operator TVO, which printed a 7-year EUR600m bond at MS+165bp corresponding to a yield of 4.8%.
Nordic macro
Denmark. The Danish government has raised its estimate for the structural budget balance by 0.4% of GDP for every year from now until at least 2030. This will allow it to increase spending or lower taxes by about DKK 12bn a year without violating its structural deficit targets. The change comes after many years of actual budget surpluses far above expectations, and in that light, the new estimate still looks cautious.
Sweden. Riksbank’s deputy governor Jansson (hawk) will participate in a breakfast seminar and discuss the economic situation (CET 8:00). Yesterday’s speech by governor Thedéen did not provide any new insights.
