Market movers today
All eyes will be on the Riksbank today and whether they deliver their first rate hike (see more below and in Reading the Markets Sweden – Preview Riksbank April meeting, 22 April). Sweden also releases retail sales this morning.
Preliminary German CPI for April will also be interesting. Consensus looks for a flat headline inflation at 7.4%.
In the US it is time for quarterly GDP figures for Q1. Consensus looks for a drop to 1.1% q/q annualised from 6.9% in Q4. However, private consumption is expected to have grown a solid 3.5% q/q annualised in Q1 up from 2.5% in Q4. Initial jobless claims will also be released and so far they continue to point to a very hot labour market.
The 60 second overview
EU reacts to Russia energy shut-down: As a response to Russia’s suspension of gas exports to Poland and Bulgaria European Commission President Ursula von der Leyen yesterday advised EU companies not to follow Russian demands for RUB payments. The guidance come amid speculation of whether European energy companies following Russian demands would be a breach of EU sanctions or not. European natural gas prices have soared almost 20% on the recent escalation with focus increasingly turning to Germany and Italy – two of the biggest Russian gas importers in the EU. Higher energy prices mark a substantial headwind for the Eurozone growth outlook which is also reflected in the EUR currency hitting the lowest level vs the USD since 2017.
Bank of Japan: The Bank of Japan (BoJ) continues to stand out among major central banks as it released a dovish statement this morning and pledged to buy 10-year JGBs at a rate of 0.25% every business day from now on following temporary purchases over the recent week. The forward guidance was also kept unchanged as the BoJ intends to continue on the current path as long as necessary to achieve the price stability target. The BoJ seems mostly concerned about the impact of the pandemic on businesses following a reduction in its growth forecast. Inflation is now expected at 1.9% in the fiscal year 2021, primarily driven by energy prices. It looks like the market had priced in some probability of the BoJ loosening the grip on the yield curve and thus USD/JPY took a leap higher from 128.6 level to 129.7 on the back of the statement.
Equities: Uncertainty and fear still dominating equity markets and hence it was no surprise to see yet another session yesterday with high intraday volatility. However, equities ended higher for a change and the sector/industry rotation was not a top down story but rather a bottom up/earnings report story. It is very rare to see software and service in massive outperformance on a day with media and entertainment massively underperforming. The reason was of course the reporting from Microsoft versus Alphabet. Good to see most styles performing more or less equally and VIX a notch lower (32).
In US, Dow +0.2%, S&P 500 +0.2%, Nasdaq -0.01% and Russell 2000 -0.3%. The positive sentiment is carrying over to Asia this morning and into both US and European futures.
FI: Yesterday, US Treasury yields rose again despite the recent safe-haven buying due to volatile stock markets, lock-downs in China and the ongoing war in Ukraine. However, analysts and investors expect the Federal Reserve to become even more hawkish.
FX: The relentless rally in broad USD continued yesterday, where DXY reached the highest level in over five years. At the other end of the scale, NOK continued to suffer despite the rise in energy prices. At the time of writing USD/JPY is trading just south of the psychologically important 130 level.
Credit: Worries about European growth and renewed volatility in energy prices caused the bear-market in credit to continue yesterday. Itraxx main widened 0.4bp to 87.9bp and Xover widened 4.4bp to 414.5bp. This marks the 5th trading day in a row with widening spreads in CDS indices.
Nordic macro
It will be a close call between the Riksbank hiking policy rates today or in June (our forecast). Market prices around 70% (18bp) for April, while market consensus is for a June hike. Why wait? 1) Riksbank has never hiked without prior guidance in the repo rate path (not doing so could be viewed as ‘panicking’. 2) 5y inflation expectations and also wage growth is still very moderate. The reason for Riksbank to start hiking is inflation target credibility and to mitigate further 2nd round effects. We expect Riksbank to announce a front-loaded repo path, around 100bp over the next year with a terminal point around 1.5% which would be much below market pricing (yesterday 221bp up until Sep 2023). That said, the market will likely also pay little attention to the rate path. QE purchases are expected to be reduced form SEK 37bn in Q2 to 20bn in Q3 and 10bn in Q4.
There’s also a lot of data out this morning (before Riksbank) with prime focus on the Q1 GDP indicator. Market expects -0.5 % qoq/3.8 % yoy but we would not be surprised to see a bigger drop given plunging real wages, consumer confidence and wealth. NIER also releases the April confidence survey so more data on how businesses and consumers view recent events.
