Market movers today
- We end the week in a quiet fashion with few market movers on the agenda. Pent-up demand and higher savings should continue to boost UK retail sales for May which are released this morning.
The 60 second overview
Norges Bank: Norges Bank surprised the markets hawkishly by verbally clearly pointing to the first rate hike in September, and rising the rate path to indicate a total of four hikes over the next year. The central bank revised the projected output gap upwards and now expects the output gap to close in Q3 this year. We agree with their analysis, and now expect Norges Bank to hike in both September and December this year, and continue with hikes in March and June next year.
Bank of Japan: This morning, the Bank of Japan (BoJ) extended the deadline for its special programme aimed at channeling money to cash-strapped firms from September to March, as also expected. In more of a surprise move, BoJ also announced it will launch a new measure to provide funds to financial institutions for investment or loans they make to address climate issues. The bank intends to launch the measure this year and will provide an outline at the July policy meeting. BoJ kept its QQE with yield curve control unchanged with the target for the short-term interest rate at -0.1% and for 10-year bond yields around 0%. Muted reaction in financial markets this morning with USD/JPY at 110.2 after it has retraced some of the post FOMC meeting increase from Wednesday.
Commodities: The broad USD appreciation following the FOMC meeting has weighed on commodity prices together with China’s efforts to curb the rise in prices. Copper has now lost 10% since the peak level in mid-May, while lumber prices have fallen by around 45% back to March levels. Our view of further dollar strength together with moderating demand from China implies lower industrial metal prices towards the end of the year.
Equities: Equities finished little changed on Thursday. The session started with value outperforming growth but reversed to an outright tech rally during the day. Rotation was massive, with tech outperforming banks by 4p.p. Banks, energy and materials the struggling sectors while and tech were the standout on semi strength and FAANGs saw good gains. Diverse index performance in the US, with S&P 500 unchanged, Nasdaq up 0.9%, Dow down -0.6% and Russell 2000 down -1.2%. Sentiment is lingering in Asia this morning with most markets a notch higher. US futures points to a green opening, and Nasdaq continuing its outperformance.
FI: It was quite a mixed day yesterday while European bond markets digested the FOMC decision from Wednesday night, where 10y US Treasuries sold off by 8bp. The 5y point underperformed in a bearish flattening move, where 30y Bund yields declined 2bp.
FX: Dollar continued its strong uptrend yesterday, with EUR/USD at one point being below 1.19, from 1.22 just a few days ago. As highlighted going into the Norges Bank meeting, the external investment environment post Fed is far more important for EUR/NOK than the NB meeting – despite the hawkish surprise from NB; and hence NOK fell as dollar strengthened. Yesterday saw a weaker SEK throughout the day, following a stronger USD.
Credit: While both iTraxx Xover and Main closed unchanged (in 234bp and 47½bp, respectively), cash bonds remained under pressure, with HY widening 3bp and IG almost 1bp.
