Market movers today
A key focus today will be the August flash PMIs out in most western countries. In Europe, further declines – as also signalled by ZEW – will probably be in store, as the energy crisis is taking its toll on demand in manufacturing and services, and recession fears are rising.
In the US, lower gasoline prices and a rebound in real incomes may support service sector demand while the manufacturing PMI may still be affected by waning goods demand in line with the New York Empire manufacturing survey last week, which dropped sharply.
In the euro area, we will furthermore get the preliminary consumer confidence number for August, which is set to decline further to record low levels on the back of the huge negative shock to real incomes in Europe from surging inflation.
The 60 second overview
Sour risk sentiment in financial markets: It was again a volatile day in the global financial markets with a solid decline in both equity markets and a significant rise in bond yields. Among other victims were the EUR/USD which fell below parity to its lowest level since 2002. Furthermore, the measure of equity market volatility, the so-called VIX index, jumped almost 15%. Asian equity markets are also in red this morning.
As the Fed is expected to stay hawkish: With no macro releases, the move was driven by the expectation that Fed Chairman Powell will state at the Jackson Hole symposium later this week that the rate hikes from the Federal Reserve are far from over even if the pace of the rate hikes is slowing down.
And the energy woes in Europe deepen: At the same time, the mood in Europe was hit by the announcement from Russia of a temporary closure of the Russian gas pipe to Europe, North Stream 1, from 31 August to 2 September due to an unscheduled maintenance from the Russian side. This led to further 19% spike in European gas prices, worsening the stagflationary outlook for Europe.
FX: The surge in European natural gas prices set the tone in the FX market yesterday with the notoriously vulnerable HUF, PLN, CZK and EUR posting significant losses. EUR/USD broke below parity and hit the lowest levels since 2002. SEK continues to trade poorly while NOK has held up remarkably well.
Credit: Yesterday was characterised by negative sentiment in the credit markets with substantial widening in both cash- and CDS indicies. iTraxx main widened 6.7bp to 110.2bp while Xover widened 26.1bp to 551.5bp. In spite of the weak sentiment, several new bond deals were announced, with issuers probably exploiting that the full European investor community is now back from holidays.
Nordic macro
HOX dipped significantly again in July as expected, down 2.9 % mom which puts the decline from peak in March to around 9.0 %. The decline was fairly broad based showing flats and villas declining by 3.5 % mom and 2.7 % mom respectively. Surely this adds to the notion that Sweden is heading for serious times.
