Market movers today
- The key release in Europe is the German ZEW for June – we wouldn’t be surprised to see some stabilisation in the expectations amid signs of a peak in manufacturing, but overall should still paint an upbeat picture. The current economic situation assessment still has some catch-up to do.
- In the US, the NFIB small business optimism for May will give important insights on the re-opening of the US economy on small business, which have been most vulnerable and hence can benefit the most from the re-opening.
- Overnight, Chinese PPI and CPI inflation numbers for May are released and both are expected to tick up compared to April to 8.5% and 1.6% respectively, driven in part by higher raw material costs.
- In Scandinavia, we get several important data releases in not least the Norwegian Regional Network Survey and Swedish production and household consumption data. For more information see the “Nordic Macro” section.
The 60 second overview
Reduced market uncertainty: implied volatilities have moved lower across assets ranging from equities and bonds to FX and commodities. Friday’s nonfarm payrolls report was not strong enough for markets to price in a shift in Fed rhetoric, yet not weak enough for markets to sell-off. This goldilocks scenario has weighed on option volatilities with markets missing a near-term catalyst. As this twitter chart shows, FX and equity volatilities measured by CVIX and VIX, respectively, are now back to pre-COVID-19 levels while US interest rate volatility remains elevated despite the recent drop. Overnight market moves have been limited across asset classes.
Equities: Global equities moved marginally higher on a relatively quiet Monday outside the small-cap/Reddit/Meme frenzy. Growth outperformed value and defensives outperformed cyclical, which fits well with the slight move lower in yields. Materials worst performing sector yesterday while healthcare stood out as the winner yesterday. In US, Dow -0.4%, S&P 500 -0.1%, Nasdaq +0.5% and Russell 2000 +1.4%. Mixed performance in Asia this morning. However, most indices are off earlier morning highs and the same goes for European and US futures.
FI: European rates traded on the weaker side after the strong rally following the US labour market report on Friday, leaving little appetite to enter new long positions just yet. Spreads ended marginally wider on the day, where notably the announcement of a 10y syndication weighed on BTPs. The syndication may be set for today’s business.
FX: In a fairly slow start to the week, Friday’s reflation-winners in AUD, NZD, MXN and NOK generally extended gains in yesterday’s session – albeit only to a modest extent. EUR/USD tested the 1.22 resistance level while EUR/GBP kept fluctuating around 0.86. EUR/SEK ended the day roughly unchanged leaving NOK/SEK close to parity.
Credit: Credit indices barely moved yesterday where iTraxx Xover closed unchanged (in 244bp) and Main tightened marginally (to 49bp). HY and IG bonds tightened 1bp and ½bp, respectively.
Nordic macro
Today, Norges Bank will publish the Regional Network Survey for Q2. There are clear signs of growing optimism in the business sector, fuelled by the relaxation of restrictions, strong global growth and continued expansionary economic policy. This should be evident in the survey, and we, therefore, expect the aggregated output index for the next six months to climb from 0.92 to in the region of 1.25-1.30. It will also be worth keeping an eye out for signs of capacity constraints and/or mounting price pressures.
We also get some interesting releases out of Sweden this morning. As PMI’s for both manufacturing and services have continued to tell tales of robust business volumes, we would expect that today’s PVI’s paints the same picture. Household consumption, on the other hand, is probably in for a slight setback, at least if retail- and car sales for April are to be trusted. The potential joker here is if “stay away consumption”, such as hotels and restaurants and the like can manage to fully compensate for this predicted decline, something that the rather strong bounce in NIER confidence data from April might hint at. Finally, we also receive Statistic Sweden’s monthly GDP indicator (April), where on the one hand strong demand in the manufacturing sector should be positive, but on the other hand, household consumption might prove to be a drag on growth. At 09.30 CET, we will know how this played out.
