Market movers today
- We are starting off the week in a relatively quiet fashion with few data releases or events likely to attract market attention.
- Later this week the ECB meeting together with the US CPI release for May on Thursday and Chinese PPI on Wednesday are the key events of the week.
The 60 second overview
The Fed to stay patient: The US jobs report on Friday will do little to change the Fed’s patient stance at the FOMC meeting Wednesday next week. Cleveland Fed President Loretta Mester over the weekend called the report solid but she’d like to see further improvement. She also said ‘we are not anywhere near a wage-price spiral’. Mester tends to err on the hawkish side. While wage pressures are rising due to labour shortages, the Fed mostly sees it as transitory and due to the enhanced benefits which are set to expire in early September. The CPI release on Thursday, where consensus looks for a further rise in core inflation to 3.4% y/y, will add another piece to the US inflation puzzle.
China trade boom: Trade data this morning showed a 51.1% y/y increase in May, the highest in eleven years. Higher import prices and strong volumes both contribute to the high growth. Exports also increased solidly by 27.9%. We look for Chinese trade to stay strong in the short term on solid external demand but to slow during H2.
CDU victory: The last state election before the September general election brought a resounding victory for incumbent CDU premier Haseloff in Sachsen-Anhalt. Both Afd (20.8%) and the Greens (5.9%) underperformed the polls, while the strong CDU result (37.1%) gave CDU chancellor candidate Laschet important tailwind for the federal elections. That said, one should be cautious in translating state election result to the federal level. The Greens have always struggled to gain support in the former East and the strong CDU result likely had a lot to do with the personal credentials of premier Haseloff and a certain ‘protest’ vote to stop the AfD’s rise in power in East Germany. Still, also on the federal level the Greens momentum has lately stalled amid discussions about higher fuel prices and a potential ban of short-faul flights that Green chancellor candidate Baerbock had advocated. Hence, Germany’s chancellor question is by no means decided and the election remains a head-on-head race between the CDU (25% in current polls) and Greens (24%).
Equities: US equities ended last week on a strong note and lifted global indices to a new all-time high. A big shift was happening Friday as growth stocks took the driver seat after a solid non-farm job report sent yields lower. Cyclicals outperform defensives and VIX fell to 16.4, just shy of the post pandemic low. Tech and communication services led the market. Materials and financials were among the relative underperformers. In US, Dow +0.5%, S&P 500 +0.9%, Nasdaq +1.5%, Russell 2000 +0.3%. Markets are mixed in Asia this morning with Hong Kong underperforming. US and European futures also slightly negative this morning.
FI: The disappointing US labour market data sent bond yields lower on Friday with 10Y US Treasuries declining some 6bp. Now we turn the attention towards the ECB meeting on Thursday. Here we expect that ECB will slow the current purchase in the PEPP from the current 80bn per month to some EUR 70bn per month in Q3. The rate outlook will remain unchanged and there will be new economic projections as discussed in our ECB preview from June 2.
FX: Reflation sensitive currencies gained on the US Nonfarm Payrolls that were too soft for markets to price in a change in Fed policy, yet still strong enough for markets to rally on lower USD real rates. That left NOK, NZD, AUD and ZAR as the clear winners while the USD and neighbouring CAD posted losses.
Credit: Credit had another decent session on Friday where iTraxx Xover tightened 3bp (to 244bp) and Main tightened ½bp (to 49bp) while cash bonds were broadly unchanged.
Nordic macro
It’s a fully loaded week in Sweden with a lot of data to keep your eyes on. Kicking off today with Debt Office’s borrowing requirement in May. Tomorrow there’s a batch of April data (production, consumption and GDP indicator) giving clues to the start of Q2 growth. We expect weak readings. On Wednesday Riksbank Governor Ingves asks where the economy is heading and Prospera releases the “big” Q2 inflation expectations survey. Thursday, however, is the focus of the week with SCB releasing May inflation. The outcome is expected below April and hence we expect the inflation peak to be passed
