Market movers today
- In the US, CPI numbers for February are likely to show quite a rebound in headline inflation due to higher energy prices while core inflation should remain fairly constant.
- Bank of Canada is set to hold policy rates unchanged and reiterate the market signal that very accommodative monetary policy is still needed. We think it is still too early for Bank of Canada to open tapering discussions.
- In the Scandi region, we get CPI numbers for Norway and Denmark (see Scandi section for more details.)
The 60 second overview
Macro: There was significant focus on yesterday’s auction of 3Y US Treasury bonds after the poor results at the recent 7Y auction. The 3Y auction saw a strong bid-to-cover (the highest since June 2018). Hence, this should dampen volatility in the Treasury market.
Today, there will be focus on the US inflation data. The expectations is for a rebound in the inflation in February. If we look at the inflation expectations measured by the 5y5y forward inflation then we have seen a decline from the peak in mid-February, where the 5y5y forward inflation peaked at 2.4%. The inflation in February is expected to rise to 1.7% from 1.4% in January, Core inflation is expected to be unchanged at 1.4%.
Looking forward, focus is on the ECB meeting tomorrow and how ECB is going to address the recent rise in European yields. There have been mixed signals from ECB officials in recent weeks regarding the rise in yields, where some have argued it was positive, while others have warned about an unwarranted tightening of financing conditions. One of our “benchmarks” for the financing conditions is the 10Y BTPS-Bund yield spread, that has stabilised around 100bp.
Equities: Another very volatile day in equities and another day with huge rotation. However, yesterday we saw a reverse of the value growth rotation, as yields took a big step lower and hence global growth stocks outperformed value by more than 2%. The risk-on environment offered strong support for cyclicals yesterday. It does not happen that often but the last month we have seen volatility increasing, equities moving lower, yields sharply higher with cyclicals outperforming defensives and value outperforming growth by a huge margin. This unorthodox correlation between factor, styles and asset classes is a result of the very strong macro outlook forcing investors to reprise central banks and not least the Fed. The 2013 taper tantrum is not a perfect example of this but is serves as one the best guides in our opinion.
Despite the rotation being most visible in the US session, IT and consumer cyclicals still manageed to outperform both energy and financials by more than 3% in MSCI World. In US trade: Dow +0.1%, S&P 500 +1.4%, Nasdaq +3.7% and Russell 2000 +1.9%.
Asian markets are relatively calm this morning compared to the session on Wall Street yesterday. European and US futures are slightly down.
FI: Yesterday, we saw a decent decline in global bond yields and the curves flattened from the long end. Furthermore, there was decent spread compression between the periphery and the core-EU and the 10Y BTPS-Bund spread moved below 100bp.
FX: The broad USD weakened in yesterday’s session as the sharp rally in core fixed income markets dragged USD real rate spreads lower. EM currencies were generally among the big winners with not least ZAR posting a more than 1% gain vs the greenback. In G10, the Scandies gained vs EUR with EUR/NOK moving below 10.10 while EUR/SEK moved close to 10.10.
Credit: CDS indices had a good day yesterday with iTraxx Xover tightening to 253bp (-4bp) and Main to 49bp (-1bp). Cash bond movements were more subdued with HY marginally wider and IG unchanged.
Nordic macro and markets
Norway. Today brings Norwegian inflation figures for February, which will be very interesting after the surprisingly high January numbers. We expect to see a similar pattern to last year when unusually low seasonal sales in January led to a less pronounced correction in February. We therefore predict core inflation of 2.9% y/y, which would be very much in line with Norges Bank’s projections in December and so have no impact on its rate-setting.
Denmark. Today we get Danish CPI inflation for February. We expect inflation to increase to 0.6% from 0.5% in January. With the February print comes the annual rent increase, which weighs 22% of the entire consumption basket. Thus, it is hugely important for the level of inflation through the entire year. Rent increases have stabilised at a low level in recent years, though, and this year we expect it to increase slightly from the 0.9% increase, we got last year. The big joker is clothing prices, which are completely off the usual seasonal patterns due to the lockdown. We expect a small increase in clothing prices from the modest January sale.
