Market movers today
- FOMC minutes from the April meeting will be released in the evening and focus will be on deciphering Fed member’s thinking on the increasingly upbeat economic data and how they assess the ‘transitory’ inflation drivers.
- Final HICP figures for April are released in the euro area. Core inflation has subsided since the start of the year and stood at a mere 0.8% in April. But in light of rising input costs (see also Global Research: Global manufacturing heading for a hot (inflation) summer, 12 May 2021), focus will be on any signs for a more durable uptrend in goods prices.
- We will also get April inflation data from the UK and Canada, and there will be several speakers from both ECB and Fed.
The 60 second overview
ECB: Germany’s constitutional court (GCC) yesterday rejected bids to enforce its controversial 2020 ruling on the legality of the ECB’s PSPP program with more orders against the Bundesbank and the German parliament. In its ruling last year, the GCC gave the ECB three months to justify QE or otherwise Germany’s Bundesbank would not be allowed to further join the program. After the ECB provided information, the controversy calmed down. Yesterday’s ruling confirmed that the GCC does not want to reopen the battle and may indicate that GCC judges could be less confrontational in separate suits pending against the ECB’s PEPP program.
Equities: Global equities headed lower yesterday as US stocks fell, while most other regions were higher. All focus in equity markets is currently on supply pressure, labour shortage, and inflation. Yesterday was no exception and strong earnings reports barely did any good despite underscoring the strong economic backdrop. Defensives outperformed cyclicals, growth outperformed value and the VIX crept higher. In the US the sell-off accelerated in the last hour of trading with indices ending at day lows. Dow -0.8%, S&P 500 -0.9%, Nasdaq -0.6% and Russell 2000 -0.7%. Asian equities are following Wall Street lower this morning. Hong Kong and South Korea are closed for public holidays. US futures are down 0.3% while European ones are down almost 1%.
FI: European rates continue to underperform US Treasuries. We believe that this divergence shows not only an underlying worry about ECB’s upcoming PEPP decision and the programme’s future but also the significant supply in Europe. The front end market pricing point to a first ECB rate hike in Q2 2023, well before the current forward guidance.
FX: EUR/NOK continues to trade around the 10.00 level as for now, global manufacturing bottleneck- and inflation fears counter the positive NOK-impact from higher commodity prices. Inflation and differing central bank responses continue to be a key FX theme.
Credit: Monday’s soft tone continued yesterday where iTraxxx Xover widened 2½bp and Main ½bp. HY bonds widened 2bp and IG was unchanged.
