Market movers today
- Riksbank meeting minutes out today will be scrutinized for signals on the policy rate outlook.
- After G20 finance minister endorsed the global corporate tax deal over the weekend, Eurozone finance ministers will today discuss economic and financial policies. They will be joined by US Treasury Secretary Yellen, who will likely make another push for Brussels to drop its digital tax proposal.
- Later this week the June US CPI release will be in focus. The European Commission will also unveil proposals for a legislative framework to support its climate ambition to reach net zero by 2050.
The 60 second overview
ECB: After ECB last week revamped its monetary strategy (see Flash: ECB Research – Strategic Review: Striving for symmetry, 8 July), minutes from the June meeting released on Friday confirmed that the decision to extend the higher PEPP purchase pace into Q3 was taken form a risk-management perspective. Governing Council (GC) members were concerned that a reduction in the purchase pace could cause a disorderly rise in yields and weigh on financing conditions. On the other hand, voices in the GC about the side effects of asset purchases are also growing louder and we expect discussions on the future of the PEPP programme to gather pace over the summer, with a decision likely coming at the September meeting. In an interview over the weekend, President Lagarde also said markets should prepare for new monetary stimulus guidance at the meeting next week and signalled additional measures may be brought in next year to support the economy after the PEPP program ends.
Covid-19 & Delta: Continued spreading of the delta variant has weighed on risk sentiment last week. However, an increasing number of studies shows that while vaccines are slightly less effective at preventing symptomatic illness for the delta variant, they still have an extremely high efficacy against severe illness. This implies that rising delta cases should be manageable in most advanced economies as a result of the relatively good vaccination coverage. However, the situation remains more difficult in developing economies, were new restrictions to stem the spreading could weigh on economic activity.
Markets: Asian shares are in the green this morning after their US peers ended last week on new record highs as investors continued to bet that global growth remains on track despite new Covid-19 variants. Chinese stocks also found support after the central bank cut the reserve requirement for banks to support growth. US and European equity futures contracts are little changed, but investors will turn their focus this week to the Q2 earnings season. After jumping on Friday, 10Y US Treasury yields stabilized around 1.35% and Tuesday’s US CPI data and Fed Chair Powell’s semi-annual appearance before Congress will be key in setting the direction for US yields this week. Brent oil was steady at USD/bbl 75.5.
FI: Friday’s EGB move was a minor reversal of the rally observed since the beginning of the week. With summer lull taking its toll on markets, ECB policy messages ahead of next week’s meeting (which also takes into account the new policy strategy formulation) will have the risk of larger than usual market moves. As ECB is still in easing mode, attempting to reduce volatility over the summer, further downside risk to rates is noteworthy as well as spread tightening driven by carry trades. Fed is still being closely monitored for a change in policy stance. We identify the two key risks being 1) markets anticipating an ECB September tapering discussion (May repeat) and 2) US repricing spilling over to the EGB market after US labour market and CPI data surprises but also add a third – next week’s ECB meeting.
FX: Friday’s session saw a partial reversal of the sharp moves seen Thursday: reflation sensitive currencies gained while duration sensitive currencies and safe havens lost terrain. The broad USD weakened and EUR/USD is back above 1.1850. EUR/NOK has been through a rollercoaster ride and from having traded as high as 10.4350 on Thursday is now back towards 10.30. EUR/SEK remains within the 10.10-10.20 range and is currently trading in the upper parts close to 10.20. In terms of the Scandies global sentiment and the USD remain the most important drivers. Meanwhile for SEK this week we have some potential domestic market movers, such as today’s Riksbank minutes and Wednesday’s inflation print. As recent Riksbank communication hints at inflation making its way back to the top of the Riksbank’s agenda, the inflation-SEK-link is bound to be reinstated soon enough. It remains to be seen, however, if it is already now or whether the summer lull keeps a lid on Wednesday’s figures.
