Market movers today
- Today’s highlight will be the US jobs report, which will give insights into whether businesses had more success hiring workers in July. The FOMC has clearly stated that job growth is a key determinant for the monetary policy outlook. Consensus is looking for an increase in non-farm payrolls by 870k, but the private sector ADP employment report earlier this week missed expectations with only 330k new jobs created during July. Labor shortages might hence still limit jobs growth despite half of US states have already phased out extraordinary unemployment benefits.
- In Sweden, the NDO publishes borrowing numbers for July where the reference is a projected SEK6.3bn deficit. The cumulated outcome since the last government borrowing report in May is almost banged in line with the NDO forecast.
The 60 second overview
Bank of England: The Bank of England maintained its monetary policy unchanged in the August meeting, but struck a moderately hawkish tone by clearly signaling some monetary tightening if the economy continues recovering in line with expectations. Inflation was seen accelerating to 4% by the end of this year before stabilizing towards the 2% target next year. We expect BoE to end its quantitative easing program by the end of this year, and begin lifting rates by a first 15bp hike in H2 2022. BoE also noted that it plans to begin unwinding the QE purchases once the benchmark rate reaches 0.5%, which is currently being priced in by 2023.
US labor market: Both initial (385k; prev. 400k) and continuing (2930k; prev. 3269k) US jobless claims continued edging lower as 26 states ended the federal unemployment benefits early during June and July. Both figures remain elevated compared to the pre-pandemic levels (around 200k for initial, 1700k for continuing).
Delta variant: Fed’s Kashkari was optimistic about the labor market recovery, yet he was worried about the spreading of the delta variant. In Australia, RBA governor Philip Lowe noted that the Reserve Bank is ready to act if the virus situation worsens further. However, in its monetary policy statement released overnight, the central bank’s base scenario still assumes that the current lockdowns can be eased in the fall. BoE also had a positive view in its statement yesterday, expecting the pandemic’s effect on the British economy to fade.
Equities: Equities higher yesterday resulting in a new all-time high for MSCI world and some local indices as well, including the S&P 500 and Nasdaq. Interestingly the correlation between yields and equities is back in positive territory so it will be important to see if that holds after the NFP number later today. Energy and financials outperforming yesterday while high flying health care underperforming. A strong run lately for health care combined with some less encouraging earnings results in the reason for the move lower yesterday. Asian markets are mixed this morning while European and US futures are slightly negative.
FI: 10Y US Treasury yields rose some 4bp during Thursday’s trading hours on the back of somewhat positive US labor market data and a more hawkish Bank of England statement. There were some spill-over effects on European yields, but the 10Y German government bond yield remains around -50bp. However, the spread tightening between the periphery and the core-EU also continued, and we are back to testing 100bp in the 10Y spread between Germany and Italy in the 10Y segment.
FX: EUR/GBP dropped below 0.85 yesterday after the Bank of England meeting, which send a hawkish signal to the market. EUR/NOK fell below 10.43 and EUR/SEK held steady close to 10.20.
Credit: Credit had a good run yesterday, with iTraxx Xover tightening 2½bp (to 234bp) and Main ½bp (to 46bp). HY bonds tightened 2bp and IG finished marginally tighter.
