Market movers today
- The agenda is very thin today on economic data but we have a range of Fed speakers tonight. It will be interesting to see if they stick to the ‘patience story’ or whether upside risks to inflation becomes a rising issue in the speeches after the latest very high core PCE inflation number.
- Denmark releases May’s FX reserves at 17.00 CEST. During part of May, EUR/DKK traded around the 7.4360 level, which triggered FX intervention in February-April. Hence, there is a good chance FX intervention continued.
The 60 second overview
US manufacturing: ISM beat expectations yesterday and increased from 60.7 in April to 61.2 in May. New orders also increased and supplier deliveries are at the highest level since 1974; a clear sign overheating is not easing up yet. Overall the numbers fit with our expectations that overheating will be with us for the summer but should ease up during h2.
Oil: OPEC+ stuck to the current plan of gradually normalising oil output. Oil prices rose, with Brent briefly climbing above USD71/bbl, as the market seems more concerned about risk of tight oil market in coming months than OPEC normalising output too fast.
Equities were mostly higher in Tuesday’s trading, although US equities lost steam during the day and closed mixed. Value was back in fashion and what is more – small caps outperformed heavily. The cyclical vs defensive trade was more modest, as growth intense cyclical sector underperformed, which made US a big underperformer. This is more or less spot on of how we expect markets to pan out during summer, both on sector, style and regional levels. US closed mixed with Dow 0.1%, S&P 500 -0.1%, Nasdaq -0.1% but Russell 2000 up 1.1%. Energy was the clear standout, followed by classic value sectors such as financials and industrials. Meanwhile, health care, utilities and tech were in the bottom. Growth is driving markets lower in Asia as well this morning, with most markets dropping but value-intense Japan higher. US futures point to roughly unchanged markets.
FI: European rates ended marginally higher in a bear steepening move. The price action was relatively muted through the day even as euro area inflation hit 2% in May and the EU revised their guidance of long term debt to EUR80bn for the rest of this year topped up with ‘tens of billions’ of short-term issuance. EU Commissioner Hahn reiterated that on average EUR150bn could be issued between mid-2021 and 2026. The virtually absent market reaction to the news indicates that the significant supply was already expected by markets although the volume target for this year is slightly higher than initially guided and the timing of the first issuance already this month is ahead of previous guidance. Conventional EU bonds have underperformed peers in the recent two weeks.
FX: EUR/USD moved sideways yesterday and the reaction to the higher-than-anticipated ISM manufacturing index was limited. EUR/GBP moved slightly higher amid discussions on whether to postpone the grand re-opening on 21 June due to the Indian variant. Initially NOK had a strong start to June but later erased gains amid the setback to oil prices post OPEC+.
Credit had another decent session with iTraxx Xover tightening 1½bp (to 245bp) and Main ½bp (to 49bp). HY tightened 1½bp and IG was unchanged.
