Market movers today
Today’s calendar is rather thin.
In the US, the NFIB small business survey is quite interesting, not least the sub-components, which provide information about the labour market and underlying inflation pressure. We expect the survey will reveal that the labour market remains tight, with many businesses struggling to find qualified workers and expecting higher wage growth. Simultaneously, businesses are likely to report that a majority expects consumer price increases.
The US Senate Banking Committee holds a hearing on Fed Chair Powell’s renomination. We expect Powell to be approved without too many problems, as he enjoys overall support from most Democrats and Republicans, despite some criticism from both left-wing Democrats and right-wing Republicans.
Also still focus on rising geopolitical tensions between Russia and US/Europe/NATO.
The 60 second overview
US-Russia talks ended on Monday on a cautiously optimistic tone, sending RUB higher. As expected, no agreement was reached, but both sides agreed to continue talks. The US representative, Deputy Secretary of State Wendy Sherman, said that any major breakthrough would take several weeks if not longer. She also said the US was open to discuss the size and scope of future military exercises as well as the positioning of intermediate-range missile systems in Europe. The US had earlier communicated that Russian demands not to expand NATO further to the east are a non-starter. Russia, however, repeated its demands in this regard while also insisting that NATO should never let Ukraine or other ex-Soviet states join the alliance. Stakes remain high with Russia having deployed more than 100,000 troops at the Ukraine border and the possibility of large-scale economic sanctions against Russia being raised in a response to a potential attack. The focus now turns to Brussels, where Russia is due to meet NATO representatives on Wednesday and to Vienna for consultations under the OSCE framework on Thursday.
Euro Macro: The number of unemployed people in the euro area fell by 220,000 in November, lowering the jobless rate to 7.2%, within a whisker of its record low in March 2020 when the pandemic hit. Although the labour market recovery remains a bright spot, the triple headwinds of new COVID-19 restrictions, ongoing supply bottlenecks and real household income erosion are increasingly weighing on the euro area macro momentum, as we discuss in Euro Area Macro Monitor – Triple headwinds, 10 January.
FI: Modest movements in yields and spreads yesterday after the sell-off that began in mid-December. Since mid-December 10Y US Treasuries and 10Y Bunds have risen approx. 35bp. The German and US curves have steepened between 2Y and 10Y, while 10-30Y flattened in the US and the German curve was more or less unchanged from mid-December. The long trend is still for flatter curves as central banks tighten monetary policy.
FX: USD, JPY and GBP rose yesterday vis-à-vis Scandies and CHF. There were big moves on Monday with EUR/USD taking a brief dip below 1.13 as one of the main highlights.
Credit: Spreads in the secondary markets continued their widening trend yesterday. We see this as being the result of the continuation of rising rates, but also being due to an aggressive start to the primary printing season. Yesterday the market saw a flurry of new deal announcements, including hybrid bonds from TotalEnergies (i.e. 5.25 years to first call which fixed at 2%). This focus on the primary market drew liquidity away from the secondary market causing iTraxx Main to widen 1.2bp to 51.6bp and Xover to widen 4.5bp to 254.4bp. In cash, the move was more muted with IG widening 0.5bp and HY widening 1.9bp.
Nordic macro
The Swedish Debt Office (SNDO) will present their monthly report on the net outcome of the central government’s revenues and payments (the net borrowing requirement) for the month of December. The forecast is for positive borrowing requirement (budget deficit) of SEK 91.5bn. However, the two months since the latest forecast (October) have yielded an aggregate surplus (compared to said forecast) of approximately SEK 40bn, and for the whole year the figure is even greater, so we would not be surprised to see today’s figure follow that trend.
