Market movers today
- This morning, UK monthly GDP data for May are due out. We are looking for fairly strong growth due to the easing of restrictions.
- Today, the ECB minutes from the June meeting are due out. Besides that, BoE Governor Bailey and ECB President Lagarde appear on a panel discussion but the subject is digitalisation.
- G20 finance ministers and central bankers are meeting this weekend in Venice.
The 60 second overview
Markets. It has been a mixed picture in the financial markets as the new variants of the Covid-19 virus are seen to pose a threat to the economic recovery. Hence, we have seen a decline in global equity prices, but bond yields stabilised yesterday after having rallied for several days. Yesterday, 10Y Treasuries fell to 1.25% before bouncing back above 1.30%, the rally in the US Treasury market is driven by the long end and yesterday the 30Y US Treasury yield was below 1.90%, which is the lowest level since February.
Oil prices: The oil price continues to decline on the back of the feud within OPEC+ and the impact from Covid-19 variants and despite solid demand for oil as well as a decline in US stockpiles of oil. OPEC+ has still not made a deal on how to raise production, and there is no indication of when a deal is reached.
ECB update: ECB yesterday announced the outcomes of its long-awaited monetary strategy review. Going forward the ECB will define its price stability objective as a simple symmetric 2% inflation target over the medium term defined by HICP. This implies a more flexible and less aggressive inflation targeting regime than the Fed’s average inflation targeting, by tolerating, rather than targeting an inflation overshoot. We do not expect the new symmetric inflation target formulation to have much implication for monetary policy in the short- to medium-term, explaining the muted market reaction to the announcement. As the ECB strategic review resulted neither in the development of new monetary policy tools that could foster the achievement of the inflation target, nor changed its explicit target variable of HICP inflation at 2%, we do not see the probability of ECB meeting its inflation objective altered by the strategic review (read more in Flash: ECB Research – Strategic Review: Striving for symmetry, 8 July).
Equities: What looked like a muted trading dag evolved to complete risk off in Thursday markets, albeit easing slightly in the late hours of trading. Bottom line – equities lower and volatility exploding (up 25% before returning below 20 again). The initial sell-off was broad based between value vs growth, with defensives the relative outperformer (although everything lower). The US session turned out to be more of a rates play, with consumer discretionary, real estate and utilities holding up best. Banks were the worst performer, down 2-3% across markets. This morning things seems to have calmed down with US futures indicating only small declines. Asian markets are broadly lower though, especially in Japan caught in a double whammy of new restrictions and growth rotation.
FI: It was a bit of a volatile day yesterday as bond yields initially declined, but later in the afternoon began to rise again. Hence, 10Y Treasuries was down to 1.25% before moving back up above 1.30%. The flattening pressure continues on the US curve and it is bullish flattening as 2Y-10Y has flattened more than 40bp since late March.
FX: For FX, the focus yesterday was naturally on the sell-off in equities. Commodity currencies and Scandies alike weakened on the back of this.
Nordic macro
Norway: In Norway we still anticipate a gradual decline in inflation as a result of base effects and a stronger krone. We forecast unchanged core inflation of 1.5% y/y in June, but with some upside risk if there is a correction after the surprisingly large drop in prices for furniture and household items in May.
