Market movers today
- Today’s main release is the FOMC minutes from the June meeting, where the Fed was more hawkish than anticipated. Still, we doubt that the minutes will be a major market driver, as we have heard a lot from individual FOMC members since the meeting.
- Besides that we get industrial production data for May for Norway, Germany and Denmark this morning. Also the monthly GDP estimate for Norway in May is due out this morning.
- In Sweden, Swedish household consumption in May is due out at 09:30 CET.
The 60 second overview
Global bond markets rally: Global bond yields declined yesterday as the US ISM service index released yesterday afternoon undershot expectations. Furthermore, the oil price declined modestly although we are still awaiting a deal among the OPEC+ countries.
Tonight we will get the minutes from the most recent FOMC meeting and the market will be looking for comments on tapering etc. However, given a balanced view then the market impact should be limited and 10Y US Treasury yields should remain below 1.4%.
OPEC+ deal: The Biden administration held talks with Saudi Arabia, UAE and other members of OPEC in order to facilitate a deal on oil production. Hence, the market is looking towards a deal and thus the oil price declined.
Equities: Global equities slightly lower yesterday as even S&P500 broke a seven-day streak of gains. Big flattening move in yields extended value names underperformance from last week. Financials, energy and materials were all lower, while tech and bond-proxy real estate led. VIX ticked up slightly. In the US, S&P 500 closed down -0.2%, Dow -0.6%, Nasdaq up 0.2% and small caps underperforming 0.3%. Risk off continuing in Asia this morning, with most markets lower. US futures are roughly unchanged.
FI: Positive sentiment in the European government bond markets as yields decline in Europe and US. 10Y US Treasury yields declined some 4bp as the curve flattens between 2Y and 10Y as oil prices decline modestly.
FX: Yesterday, dollar strengthened and the NOK sold off as markets further faded the cross asset theme of inflation. We see further upside for dollar and downside to Scandies over the coming quarters. EUR/GBP has moved slightly lower in recent days, as GBP got support from the UK government’s decision to go ahead with the easing of restrictions 19 July amid a big delta outbreak. We think EUR/GBP will continue to trade around current levels (plus/minus) in July. After the summer holiday, we expect EUR/GBP to start trading lower.
Credit: CDS indices were hit by weaker market sentiment on Tuesday. iTraxx Xover widened around 6½bp (closed at 232.75bp) and Main was 1bp wider (closed at 46.5bp). HY cash bonds widened slightly less than CDS (+3.65bp) however IG cash bonds were largely unchanged.
Nordic macro
Norway: In Norway, the gradual lifting of coronavirus restrictions has boosted private consumption. Hence, we expect mainland GDP climbed 1.0% m/m in May, i.e. marginally more than Norges Bank assumed in its June monetary report at 0.8 %. Given how unemployment moved in May, there is also some upside risk to our forecast.
Sweden: Several data out of Sweden tomorrow. Private consumption (May) should recover after an unexpected large drop (5.1% m/m) in April. We do not see any particular reasons why consumers suddenly would sit on their hands. Also private sector production (May) which has recovered strongly since the pandemic lows last spring however more recently at a somewhat slower pace.
Also tomorrow, the Riksdag will vote on Stefan Löfven as old/new Prime Minister. There is still some outstanding uncertainties about the vote and a late infight between the Centre Party and the Greens but we would say that the most likely result is that Löfven will collect enough support to be elected. But it will be a weak government indeed and far from certain that the new government will be able to get the budget passed later this year. If not, Löfven has warned that he will resign again but there are reasons to doubt that considering the short period of time until the next general election in September 2022.
