Norway Central Bank Sharpens Its Hawkish Claws

Notes/Observations

• USD benefits from the divergence on Fed and other G7 rate views.
• Numerous rate decisions in session. SNB, Norway, Indonesia, Taiwan all keep policy steady (as expected).
• Norway Central Bank (Norges) did move closer to a series of interest-rate increases with its fined-tuned forward guidance.

Asia:

• Australia May Employment Change: +115.2K v +30.0Ke; Unemployment Rate: 5.1% v 5.5%e.
• New Zealand Q1 GDP handily beat consensus (Q/Q: 1.6% v 0.5%e; Y/Y: 2.4% v 0.9%e).
• RBA Gov Lowe noted that it was important not to lose sight of the fact that we were still in the recovery phase. YCC to be decided by chance of rate rise in next 3 years, reviewing scenarios for YCC, premature to cease bond purchases. In some scenarios raise rise conditions met during 2024.
• China State Planner noted that it had achieved preliminary results in curbing price surges in commodities. Pledged to step up supervision of spot/futures markets and safeguard normal market order. Reiterated it would work with other govt depts to release state reserves at an appropriate time to increase market supply and reduce cost pressures. Looked to guide prices back to normal.
• Former BOJ Official Maeda noted that BOJ could start debating from 2023 ways to phase out extraordinary stimulus which included ways of moving out of negative rates.

Europe:

• UK Chancellor of the Exchequer Sunak (Fin Min): inflation expectations were quite well anchored, but inflation remained one of many risks, targeting to reduce deficit.

Americas:

• FOMC kept its target range unchanged (as expected) but hiked the IOER by 5bps to 0.15%. Dots moved up timetable for potential rate hikes to 2023 (projections saw 2 hikes by end-2023). 13 of 18 officials indicated they expect to lift short-term rates by the end of 2023 (7 officials see a hike in 2022 vs 4 in March; 13 see a hike in 2023 vs 7 in March; lifts GDP and PCE fcasts for the yr ahead).
• Treasury Sec Yellen stated that the US was well on its way to a robust economic recovery and reiterated that she saw transitory influences on inflation.
• BOC Gov Macklem noted that the economic recovery was making big progress; Complete recovery would still take some time. Added that the 3rd wave of coronavirus was a setback.
• Brazil Central Bank (BCB) raised the Selic Rate Target by 75bps to 4.25%; as expected.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -0.40% at 458.04, FTSE -0.52% at 7,147.75, DAX -0.08% at 15,698.10, CAC-40 -0.12% at 6,644.69, IBEX-35 +0.16% at 9,217.00 , FTSE MIB -0.12% at 25,735.50, SMI -0.44% at 11,929.24, S&P 500 Futures -0.39%].
• Market Focal Points/Key Themes: European indices open lower across the board and remained under pressure as the session progressed; risk appetite diminished after unexpected hawkishness from Fed; financials consumer sectors among the better performers; sectors leading to the downside include utilities and materials; focus on upcoming central bank decisions through the day; earnings expected during the upcoming US session include Commercial Metals, Kroger and Jabil.

Equities

• Consumer discretionary: Whitbread [WTB.UK] +3% (trading update), Ryanair [RYA.UK] +3%, TUI [TUI.UK] +3% (UK govt could allow fully vaccinated Britons to travel to ‘amber list’ countries without being subject to quarantine), Mitie Group [MTO.UK] -4% (placement).
• Financials: Record [REC.UK] -6% (earnings).

Speakers

• Swiss National Bank (SNB) Policy Statement reiterated language on FX; CHF currency remained highly valued and was willing to intervene more strongly in the FX market.
• Swiss National Bank (SNB) Financial Stability Report noted that the economic and financial conditions had improved but pandemic continued to weigh on economy. Would assess need for reactivating capital buffer.
• SNB President Jordan post rate decision press conference noted that its expansionary monetary policy remained appropriate. Expected inflation in Switzerland to rise during 2021 before declining again. Long-term inflationary expectations seen around 1%.
• Norway Central Bank (Norges) Gov Olsen post rate decision press conference noted that it could raise rates twice in 2021. he stressed that the rate path indicated a 0.25% hike each pf next 4 quarters.
• ECB’s Lane (Ireland, chief economist) reiterated stance that situations in EU and US were different. Would take a long time for labor market to recover. ECB was not mechanical or have a fixed approach in deciding the pace of the Pandemic Bond Buying Fund (PEPP) and reiterated stance that was unnecessary and premature to talk about ending the PEPP.
• BOE’s Haldane (dissenter on QE, chief economist) noted that the UK economy might be near its pre-COVID output.
• Norway Finance Ministry: To raise the countercyclical capital buffer requirement from 1.0% to 2.5%; effective Jun 30th 2022.
• Sweden Left Party (coalition member) stated that it no longer have confidence in PM Lofven and would seek a no confidence vote (**Reminder: On Jun 15th Left Party vowed to bring it down over the prospective abolition of rent controls on new residential housing).
• Poland Fin Min Koscinski stated that 2021 CPI was seen at 3.1% (aka within target). Expected inflation to decline after Jun reading. Saw EU Recovery Funds adding 0.5% to GDP growth forecast.
• India Economic advisor Sanyal stated that would watch the inflation spike closely as price pressures were global. Reasons for inflation spike to dictate policy. Would do all that was required on fiscal front to spur growth – include more borrowings if necessary.
• Indonesia Central Bank Gov Warjiyo pre-rate decision comments noted that the Global and domestic economic recovery were continuing. Domestic household consumption, manufacturing activity and exports to improve in Q2 but noted the rise in covid inflections was seen as a risk to GDP growth. Reiterated to stabilize IDR currency (Rupiah) to be in-line with fundamentals; govt to continue stabilization measures in FX.
• Indonesia Central Bank Policy Statement noted that its decision to keep policy steady is in-line with to keep IDR currency (Rupiah) stable and support GDP growth outlook.
• Taiwan Central Bank Policy Statement noted that the decision to keep policy steady was unanimous and it would continue its accommodative monetary policy. It saw stable economic growth in 2021 but noted that consumption had been impacted by pandemic while global economic recovery to support exports. It saw slightly lower GDP growth in Q2 . Rise in inflation seen as transitory with 2021 outlook seen as moderate. Inflation will gradually stabilize in H2.
• China Commerce Ministry (MOFCOM) spokesperson Gao Feng reiterated stance that it faced uncertainties on foreign investment this year. To improve trade policy tools to support companies.

Currencies/Fixed Income

• USD benefited from the divergence on Fed and other G7 rate views. The greenback extended its gains following Thursday’s hawkish Fed statement and signaling it would raise interest rates and end emergency bond-buying sooner than expected. Various analysts noted that they now saw Fed interest rate hike lift-off in 2023 with the taper beginning in early 2022.
• EUR/USD was lower to test below 1.1950 in the session. Soft Euro tone highlighted by ECB’s Lane (Ireland, chief economist) who stressed that the situations in EU and US were different (aka dovish tilt).
• USD/CHF was lower as dealers noted that any policy tightening from the SNB remained a distant prospect as the highly valued CHF currency (Franc) was holding down inflation.
• Norges Bank has clearly signaled that it intends to hike the key rate in September, and the new rate path suggests a high probability of a second hike in December,.

Economic data

• (NL) Netherlands May Unemployment Rate: % v 3.4% prior.
• (CH) Swiss May Trade Balance (CHF): 5.0B v 3.3B prior; Real Exports M/M: +2.6%v -0.3% prior; Real Imports M/M: -1.1% v +1.3% prior; Watch Exports Y/Y: 174.2% v 446.1% prior.
• (EU) EU27 May New Car Registrations: 53.4% v 218.6% prior.
• (ES) Spain Q1 Labour Costs Y/Y: +1.4% v -0.1% prior.
• (AT) Austria May Final CPI M/M: 0.3% v 0.3% prelim; Y/Y: 2.8% v 2.8% prelim.
• (ID) Indonesia Central Bank (BI) left 7-Day Reverse Repo Rate unchanged at 3.50% (as expected).
• (CH) Swiss National Bank (SNB) left its Key Rates unchanged (as expected) with Policy Rate and Deposit Rates both unchanged at -0.75%.
• (IT) Italy Apr Total Trade Balance: €5.9B v €5.2B prior; Trade Balance EU: €1.0B v €0.4B prior.
• (NO) Norway Central Bank (Norges) left the Deposit Rates unchanged at 0.00% (as expected).
• (ES) Spain Apr Trade Balance: -€1.3B v -€0.4B prior.
• (TW) Taiwan Central Bank (CBC) left its Benchmark Interest Rate unchanged at 1.125% (as expected).
• (HK) Hong Kong May Unemployment Rate: 6.0% v 6.2%e.
• (EU) Euro Zone May Final CPI Y/Y: 2.0% v 2.0%e; CPI Core Y/Y: 1.0% v 0.9%e;PI M/M: 0.3% v 0.3%e.
• (EU) Euro Zone Apr Construction Output M/M: -2.2% v +4.1% prior; Y/Y: 42.3% v 20.0% prior.
• (GR) Greece Q1 Unemployment Rate: % v 16.2% prior.

Fixed income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €5.52B vs. €5.0-6.0B indicated range in 2024, 2028 and 2037 bonds.
• Sold €1.97B in 0.0% May 2024 SPGB bonds; Avg yield: -0.440% v -0.356% prior; Bid-to-cover: 2.02x 1.78x prior.
• Sold €2.16B in 0.00% Jan 2028 SPGB bonds; Avg yield: 0.011% v 0.171% prior; Bid-to-cover: 1.16x v 1.78x prior.
• Sold €1.39B in 0.85% July 2037 SPGB bonds; Avg Yield: 0.972%; bid-to-cover: 1.55x.
• (FR) France Debt Agency (AFT) sold total €9.999B vs. €9.0-10.0B indicated range in 2025, 2027, 2028 and 2029 Bonds.
• Sold €3.134B in 0.5% May 2025 Oat; Avg Yield: -0.51% v +0.10% prior; Bid-to-cover: 2.53x v 4.09x prior (Jan 24th 2019).
• Sold €3.150B in 0.00% Feb 2027 Oat; Avg Yield: -0.30% v -0.19% prior; bid-to-cover: 2.27x v 2.32x prior (May 20th 2021).
• Sold €1.880B in 0.75% Nov 2028 Oat; Avg Yield: -0.21% v -0.03% prior; Bid-to-cover: 2.47x v 2.28x prior (May 20th 2021).
• Sold €1.835B in 0.50% May 2029 Oat; Avg Yield: -0.10% v -0.18% prior; Bid-to-cover: 2.31x v 1.90x prior (Apr 22nd 2021).
• (IE) Ireland Debt Agency (NTMA) sold €750M vs. €750M indicated in 6-month Bills; Avg Yield: -0.622% v -0.602% prior; Bid-to-cover: 2.45x v 2.30x prior.

Looking Ahead

• (ZA) South Africa announces details of next bond auction (held on Tuesdays).
• (EU) Euro-Area Finance Ministers (Eurogroup) meeting.
• 05:20 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches).
• 05:50 (HU) Hungary Central Bank One-Week Deposit Rate tender.
• 05:50 (FR) France Debt Agency (AFT) to sell €1.75-2.25B in inflation-linked 2025, 2031 and 2047 bonds (Oatei).
• 06:30 (EU) ECB allotment in 3-year TLTRO-3 Tender.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: Expected to raise Key Rate by 50bps to 8.00%.
• 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 19.00%.
• 07:00 (ZA) South Africa Apr Retail Sales M/M: +1.5%e v -3.7% prior; Y/Y: +99.7%e v -2.5% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) Initial Jobless Claims: 360Ke v 376K prior; Continuing Claims: 3.43Me v 3.499M prior.
• 08:30 (US) Jun Philadelphia Fed Business Outlook: 30.5e v 31.5 prior.
• 08:30 (CA) Canada May Teranet House Price Index M/M: No est v 2.4% prior; Y/Y: No est v 11.9% prior; HPI: No est v 261.74 prior.
• 08:30 (CA) Canada Apr Int’l Securities Transactions (CAD): No est v 3.3B prior.
• 08:30 (US) Weekly USDA Net Export Sales.
• 08:30 (IE) ECB’s Lane (Ireland, chief economist).
• 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 11th: No est v $605.2B prior.
• 09:00 (EU) European Finance Ministers (Eurogroup) meeting with ECB’s chief Lagarde and Panetti (Italy).
• 10:00 (US) May Leading Index: 1.3%e v 1.6% prior.
• 10:30 (US) Weekly EIA Natural Gas Inventories.
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.
• 12:00 (RU) Russia May PPI M/M: 1.9%e v 2.7% prior; Y/Y: 34.0%e v 27.6% prior.
• 12:00 (CA) Canada to sell 2-year notes.
• 12:30 (IT) ECB’s Visco (Italy).
• 13:00 (US) Treasury to sell 5-Year TIPS.
• 19:30 (JP) Japan May National CPI Y/Y: -0.2%e v -0.4% prior; CPI (ex-fresh food) Y/Y: 0.0%e v -0.1% prior; CPI (ex-fresh food/energy) Y/Y: -0.3%e v -0.2% prior.
• Bank of Japan (BOJ) Interest Rate Decision: expected to keep policy steady; Expected to leave Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintain Yield Control (YCC) at 0.00%.
• 23:00 (CN) China to sell 50-year Upsize Bond.
• 23:30 (HK) Hong Kong to sell 1-month Bills.