Big Central Bank Day

Market movers today

A big central bank day today is kicked off at 9.30 CET with SNB, were we look for a rate hike to 1.75% from 1.5%, in line with consensus.

Norges Bank follows shortly after at 10.00 CET. Here we also look for a 25bp hike to 3.5% and a signal of a further 25bp in August.

At 13.00 CET it is Bank of England’s turn to lift rates by expected an 25bp to 4.75% from 4.5% and in the minutes it will be interesting to see BoE members’ views on the recent rise in inflation.

Another central bank will attract attention today as Turkey’s central bank will set rates at 13.00 CET. The appointments of new finance minister and central bank governor after the Turkish election points to some changes in economic policies, but it remains to be seen how it will play out.

Finally we have to Fed members, Bowman and Mester, speaking on top of Powell’s second-day testimony in Congress. The latter is unlikely to differ from today’s testimony, though.

On the data front we get Norwegian credit indicator, French business confidence, US initial jobless claims and US existing home sales.

The 60 second overview

Markets: Equity markets continued this week’s cautious sentiment. European markets generally ended in negative territory after stronger-than-expected UK inflation and ongoing global growth concerns put a lid on risk appetite. UK inflation surprised to the upside for the fourth consecutive month, largely due to stronger services inflation. In the US, equity markets also drifted lower, especially major tech stocks, which lately have had an extraordinary run backed by AI optimism, pulled back. Powell’s testimony, although not particularly hawkish, sent US yields marginally higher in the front-end, resulting in full percentage point inversion of the 10-2 year US Treasury yield spread for the first time since March. The USD broadly weakened, while the SEK regained some territory after reaching an all-time low against the EUR. This morning, Asian equity markets are mixed and futures point to a negative open in Europe and a flat open in the US.

Powell’s testimony: There were no new signals for monetary policy. Powell described the outlook for potential new hikes in a very similar fashion as he did last week, saying it may make sense to hike further at a more moderate pace (but not pre-committing to anything). For the economic outlook, he reiterated that the Fed is seeing progress in inflation and balancing labour markets, but that there is still ways to go before reaching price stability. Fed pricing was little affected throughout the testimony.

UK inflation: Headline came in at 8.7% y/y and core at 7.1% y/y, both 0.3 p.p above consensus expectations and 0.4p.p above BoE’s headline forecast (8.3%). Services, which remains a key focus of the Bank of England increased further to 7.4% (up from previously 6.9%). The data supports notion of further hikes from here.

BoE: We expect the Bank of England (BoE) to hike the Bank Rate by 25bp .While we now expect a peak in the Bank Rate of 5.00%, we see current market pricing of a peak in policy rates of 6.00% as too aggressive. EUR/GBP is set to move higher on the statement as we expect the BoE communication to fail to live up to market expectations.

Norges Bank: We expect Norges Bank to hike the policy rate by 25bp to 3.50 %, but it is really a close call between 25b. and 50bp. Regardless of the outcome, we expect Norges Bank to signal that rates most likely will be raised again in August. In the new monetary policy report, we expect the policy rate path to be lifted by around 50bp in the coming quarters and signal a peak between 4.00-4.25 % in Q3.

US labour market: Yesterday, we published our latest overview of the US labour markets, US Labour Market Monitor – Mixed labour market data masks underlying cooling, 21 June. We highlight that even though headline NFP growth has remained strong, the Fed welcomes early signs of cooling demand and recovering supply, as more balanced labour market will help calm down wage inflation even further.

Sweden will celebrate midsummer tomorrow and the Swedish fixed income markets will close at noon today.

Equities: Equities were somewhat lower for a third day. Hence, we could be on the verge of closing markets lower for the week, which would be the first time in six weeks. There is still no direct macro drivers behind the breather in markets. Therefore, there is little distinction between cyclicals- and defensives. Instead, yesterday saw a rotation out of FANMAG (tech, communication, consumer discretionary) and into value sectors (energy, industrials). Interestingly, banks did not outperform in this environment. Futures are a tad lower, again.

FI: The higher than expected UK inflation data as well as hawkish signals from ECB initially sent bond yields higher yesterday, but later they declined and the curve flattening between 10Y and 30Y continued.

FX: SEK regained some territory during yesterday’s session after posing new all-time highs in Tuesday’s session. EUR/GBP moved sharply higher following higher than expected inflation data for May, re-establishing the link between widening interest rate differential and a weaker GBP. Today focus turns to the Bank of England monetary policy meeting, where we expect a 25bp hike. Alongside GBP, EUR/USD drifted slightly higher, trading just below the 1.10 mark. EUR/NOK traded broadly sideways as markets are in a wait-and-see mode ahead of Norges Bank meeting later today.

Credit: Credit markets had a slight risk-off tilt on Wednesday along with a somewhat soft market for equities. Itrax main widened 1.1bp to close at 77.2bp and Itrax Xover widened 4.8bp to close at 405.7bp. Primary market activity once again decent, with among others, SEB printing EUR1bn in green 4Y senior preferred notes. The notes printed at MS+80bp, which was around 20bp tighter than IPT’s.