Market movers today
Today is a quiet day in terms of economic data releases, as we mostly receive tier-2 data releases.
We have some FOMC speeches tonight with Daly and Evans on the wire. As 50bp seems like a done deal by now, the question is whether the Fed dares to hike by 75bp to get even faster back to neutral. Bullard, a well-known hawk, seems supportive while Bostic pushed back yesterday. The Fed’s Beige Book is due out tonight. The Fed’s blackout period starts on Saturday ahead of the next meeting in early May.
As the French presidential election is entering its hot phase, incumbent President Macron and National Rally’s Marine Le Pen will face each other in a TV debate at 21:00 CET today. Markets will keep a close eye on candidates’ performance, as a large part of left-wing voters remain undecided and polls still point to a narrow race.
The 60 second overview
Bank of Japan: For the third time since February, the BoJ stepped in to buy an unlimited amount of 10-year JGBs to keep its yield curve control in place as the global pressure for higher yields pushed 10-year JGBs above the BoJ’s 25bp tolerance band. With the economy still recovering from the pandemic and inflation below target, the BoJ’s policy stance remains loose and in growing divergence to other major central banks.
Economic Outlook: The IMF adjusted its expectations to global growth this year to 3.6% from 4.5% in January as the war in Ukraine is taking its toll on the global economy. Particularly the growth outlook in Europe has been hit hard and the Ukrainian economy is expected to shrink by almost 35% this year. Besides the war, IMF points to other challenges to the global economy as well such as China’s repeated COVID lockdowns and tighter global monetary policy. Only regions expected to grow faster than back in January are Latin America and the countries in the Middle East.
Equities: US equities rebounded on Tuesday but Europe a touch lower after the long holiday. Commodities pulled back and yields moved even higher. Intuitively, this triggered a rotation into value cyclicals in Europe. However, it did not in the US: Real estate, communication services and tech were beating the tape, despite the US 10y yield approaching 3%. The usual positive correlation between yields and equities is back though, as it was a clear risk on session with a preference for cyclicals.
FI: Yields continue to rise ahead of the French presidential election on Sunday and the next FOMC meeting on May 4. The upward pressure on yields is driven by the expectations for tighter monetary policy from the Federal Reserve and ECB, where a 50bp or even 75bp rate hike from the Federal Reserve is mentioned by Federal Reserve members. There are more Fed speakers today as well as the Beige Book, which is released tonight.
Looking at other central banks such as Bank of Japan, the buying of JGBs continues as they keep the yield curve target of 25bp and they plan to increase the bond buying in Q2 compared to Q1, where they bought USD 3.5bn of bonds.
FX: EUR/USD moved briefly above 1.08 yesterday but ended the day below. Lower oil prices pushed the cross higher (EUR positive) but rising US yields dominated eventually with US 10yr Treasury yields moving closer to 3.0% (USD positive). Higher US yields also pushed USD/JPY closer to 129. In the lack of domestic news EUR/NOK has been remarkably resilient to recent oil volatility – in both directions.
Credit: Credit markets saw initially a rather negative day, however the development improved over the last trading hours. Itraxx main was 1.2bp wider at 80bp, while Xover was 5.7bp wider at 380.5bp.
