Market movers today
- Today’s highlight will be the euro area flash HICP figures for June. Country figures already released point to a slowdown in headline inflation to 1.9% due to lower energy and food price inflation. More interesting will be what happens to core inflation. Volatile package holiday prices could bring another easing of core inflation from May’s 1.0% and overall the outlook for underlying inflation pressures remains subdued in the euro area (see Research Euro Area – Mind the inflation gap, 8 June).
- In the US, the ADP employment report will be monitored for any signs that private sector hiring has quickened, ahead of Friday’s non-farm payrolls report.
- Overnight, Chinese Caixin PMI manufacturing will be released, where we look for a broadly unchanged reading as strong external demand and slowing domestic demand are pulling in opposite directions (this morning the China official manufacturing index was little changed). In Japan, the quarterly Tankan business survey is likely to paint a picture of a Japanese economy still heavily supported by the global manufacturing boom but only slowly improving services activity.
The 60 second overview
Risk sentiment: Global risk sentiment has been choppy in the past days where markets are still searching for its footing in either playing the reflation theme or not. After sour risk appetite on Monday, we saw the opposite yesterday with equities performing and bond markets sell-off. Moderna said yesterday that its vaccine is effective and produced antibodies against the Delta variant.
Consumer confidence: In the US the consumer confidence (Conference Board) rose to 127.3 from 117.2, which is not far from the pre-pandemic levels. Noteworthy was that both the present situation component and the expectations component rose, which is another indication of a strong recovery in coming months. At the same time, the EC’s consumer confidence (including household financial situation expectations) stand now above pre-crisis levels, and continued declines in unemployment fears and a strong willingness to buy point to a strong rebound in private consumption in Q3 in Europe.
Equities: Equities broadly unchanged yesterday as investors await the job report Friday. MSCI still shy of all-time high as heavy-weight indices like Nasdaq edging higher and Europe playing catch-up. Risk taking re-emerged in Europe with appetite for cyclicals, but more cautious in the US: Big tech leading the gains, small caps underperforming and VIX drifting higher for a second day. S&P500 and Dow unchanged, Nasdaq adding 0.2% to the record close but Russell 2000 -0.6%. Sentiment turning in Asia this morning with broad-based gains while US futures are also higher.
FI: Markets continue to be caught in a range weighing the ‘reflation theme or not’ after the FOMC decision two weeks ago. 10s30s EUR swap curve has been virtually unchanged in the past two days, hence further steepening of the curve needs another catalyst. 10s30s are still flatter lower than pre-FOMC meeting. European rates were slightly higher, with tighter spreads in general risk positive mood. The 5y and 30y dual tranche NGEU EU syndication received strong demand of EUR88bn and EUR83bn respective (EUR9bn and EUR6bn was sold respectively). Today we focus on the Euro area HICP inflation print.
FX: Yesterday’s session was characterised by broad USD strength and commodity FX underperformance amid the general rotation out of ‘value’-assets. EUR/USD is trading close to 1.19, EUR/NOK is just south of the 10.20 mark while EUR/SEK is little changed around 10.15.
Credit: Credit only saw very small moves yesterday with both iTraxx Xover and Main tightening less than ½bp (to 230bp and 46bp, respectively). HY bonds widened around 1bp and IG closed more or less unchanged.
Nordic macro
The speaker of the Swedish parliament yesterday gave opposition leader Ulf Kristersson (Moderate party) the first attempt to try and form a new government. Kristersson has until Friday to find out if he has enough support in the parliament when he is due to report back to the speaker and a vote is expected for next week. The parliamentary situation is narrow (175-174) and absent members of the parliament or if some members vote against party lines may be decisive for whether he is successful or not. If Kristersson succeeds, he will likely have an easier path to have a budget passed. If he is not successful, the speaker has three more attempts to try and form a government before a snap election is called.
