Market movers today
- The most important event today will be the announcement of the results of the ECB’s monetary strategy review at 13:00 CEST. President Lagarde will comment on the outcome at a press conference at 14:30 CEST. The minutes from the June ECB meeting are also due out for release at 13:30 CEST. Focus will be on any deliberations of Governing Council members on the future of the PEPP programme.
- Besides that we get US jobless claims data and German trade data for May.
The 60 second overview
ECB: Yesterday, comments from ECB ‘sources’ indicated that ECB will change its inflation goal from “below, but close to 2%” to a symmetric inflation target of 2%. This would be in line with our expectations, see ECB Research Strategy Review – ‘leaving no stone unturned’, 18 June 2021. President Lagarde will officially present the results of the monetary strategy review later today. Such a new goal where inflation is allowed to overshoot 2% would foster the continuation of expansionary monetary policy and thus we expect a positive reaction in bond markets to the announcement.
Fed minutes: Minutes from the June FOMC meeting showed two camps wrangling over whether the US economy was ready for a speedier reduction of asset purchases. Some officials hinted that tapering of purchases may start earlier than expected given the stronger economic outlook, but some officials also urged caution that incoming information in the coming months would provide a better assessment of the path of the labour market and inflation. Fed officials also discussed how to go about scaling back asset purchases when the time comes and after a growing chorus of officials has publicly voiced preference for ending purchases of agency mortgage-backed securities sooner than Treasury bonds, this view was also again underscored in the minutes. The market reaction to the minutes was positive, with equities up and 10Y US Treasuries testing the 1.3%-level.
Equities: Equities edged higher on Wednesday. Risk appetite returning in the US session, with growth but also cyclicals like industrials and materials among sector leaders. Banks and energy continued to sell off though, as rates and oil volatility pose a headwind. Dow and S&P up 0.3%, Nasdaq unchanged and Russell 2000 underperforming again, down 1%. Asian markets moving lower this morning, burdened by Chinese tech and rising Covid infections. US futures drifting lower as well.
FI: Global bond yields continue to decline after the release of the minutes from the FOMC meeting. The minutes showed FOMC was not ready to scale back QE yet due to the significant uncertainty regarding the economic recovery. However, some members did see that the conditions necessary for the tapering seems to be met earlier than expected. The market reaction was positive as equities rose and bond yields fell and 10Y US Treasuries were testing the 1.3% level.
FX: The key event yesterday was the release of FOMC minutes. In our view, little change was communicated and the dollar was largely unchanged. Looking ahead, the key will be if US jobs rebound as expected in Q3/Q4. If so, EUR/USD will continue moving lower.
Credit: CDS indices were largely stable on Wednesday despite mixed equity market sentiment. iTraxx Xover tightened around 2bp (closed at 230.75bp) and Main was 0.2bp tighter (closed at 46.3bp). HY cash bonds tightened slightly more than CDS (-4.85bp) however IG cash bonds were largely unchanged (-0.22bp).
