Market movers today
The data calendar is dominated by tier-2 releases today. In the US we get data on the trade balance and pending home sales.
France and Germany release consumer confidence this morning. Both indices dropped sharply last month and we have seen similar indices in European countries plummet further in recent weeks.
In Sweden we get PPI inflation, trade balance and unemployment.
Focus will also be on Russian gas deliveries after Russia yesterday said it would halt flows to Poland
The 60 second overview
Russian energy supplies: Both Poland and Bulgaria face a cut-off from Russian energy supplies today as they have reached the Russian deadline for shifting into RUB-based payments for Russian energy. The EU has refused Russian payment demands, yet in recent weeks there has been optimism as to the potential for an EU-Russia compromise. A cut-off of Russian energy to two EU member states marks a significant escalation in the ongoing energy crisis. It further highlights the vulnerability of other EU-members like Germany as they risk similar cut-offs soon. Also the Russian decision to stop energy supplies make a European energy embargo a less potent negotiation tool and threat.
European gas prices: On the back of the escalating outlook for less – and potentially no – Russian gas supplies to the EU, European gas prices have spiked higher although yesterday’s afternoon surge of 20% was later cut in half. Brent crude oil prices moved above USD 105/bbl. Next to COVID-19, higher energy prices act as another negative supply shock to the global economy and significantly pressure not least the European economic recovery. European assets have visibly suffered from the negative terms of trade shock in recent months and the single currency has hit new lows.
Central banks: The combination of higher energy prices and a weaker growth outlook put central banks in a tough spot. Yet with inflation spiking above most inflation targets and inflation expectations moving to decade highs in many countries most central banks have clearly indicated forthcoming tightening of monetary policy. Overnight Australian inflation surprised to the topside adding pressure on the Reserve Bank of Australia to hike policy rates for the first time this cycle at the next policy meeting on Tuesday. While markets have reduced expectations for Fed policy rate hikes in recent sessions amid the sell-off in risky assets, rates pricing still embed more than 230bp worth of additional tightening by the end of this year.
Equities: Global equities down 2% yesterday and down 5% in the last 5 trading days. Drops (again) yesterday driven by the cyclical growth stocks while Min Vol and value showing massive outperformance. Tech and consumer discretionary the two biggest loser and earnings reports yesterday did not make things better. Tech normally one of the sectors with the highest surprise factor but so far after 30% reported it’s ranked as the third lowest. Yesterday in US, Dow -2.4%, S&P 500 -2.8%, Nasdaq -3.9%(down 20 YTD) and Russell 2000 -3.3%.
Markets in Asia this morning looking somewhat better with Chinese stocks slightly higher while most other markets lower. European futures slightly lower while US once slightly higher.
FX: JPY rebounded further and USD continued to climb higher yesterday. DXY has moved close to 2016 and 2020 peaks now. In the other end of the scale Scandies and GBP lost out. EUR/USD slid towards 1.06 level. The rise in USD/CNH came to a halt yesterday with the pair lingering close to 6.60 level.
Credit: Yesterday the credit markets started the day on a positive footing amid an overweight in better than expected Q1 earnings results. During the day, though, focus on geopolitics, higher rates and Chinese uncertainty crept back into the front of investors’ minds. Subsequently iTraxx main ended the day some 3.3bp wider and Xover 11.4bp wider. These indices ended the day in 87.6bp and 410.0bp respectively.
