Market movers today
Fed Chairman Powell will be interviewed at a live transmitted event at the Economic Club of Washington, D.C., beginning at 18.00 CET. This could give Powell an opportunity to mitigate the markets’ very dovish reaction to his press conference last week if he wants to, especially in light of the strong jobs report and ISM data we have seen since then.
In terms of data releases, today is on the light side.
The 60 second overview
Fed: Fed’s Bostic said that the Fed may have to do a little more work following the strong US labour market report on Friday. Bostic repeated his view of peak policy rate of 5.1%, but added the risk of more, and staying at the level through 2024.
Euro area: Weak euro area retail sales in December, after the temporary rebound in November. Decline of -2.7% m/m was quite broad-based across categories. A sharp slowdown in private consumption was a common feature visible across euro area countries during Q4, in a sign that real income losses are finally taking their toll on consumers and we expect this trend to linger into 2023.
RBA: The RBA hiked its cash rate by 25bp to 3.35% in line with consensus expectations. RBA said that Australia’s economy grew strongly over 2022 and that further rate hikes will be needed in the months ahead.
BoE: Yesterday, the BoE’s most hawkish member, Mann highlighted that inflation expectations are still above target and that she sees upside to the inflation outlook. She emphasised that a pause in the hiking cycle would be both hard to communicate but also to transmit through markets to the real economy. Likewise, she thought that the next step in Bank Rate was still more likely to be another hike than a cut or hold. With market pricing relatively close to our call of a final 25bp hike in March, we increasingly see relative rates being more neutral for the cross going forward as opposed to positive.
Japan: The nominal labour cash earnings estimate for December rose to 4.8% yoy, the highest since the early 1990’s. The unusually high print comes after significant bonuses, and adds pressure on the BoJ as wage growth is closely linked to inflation developments in Japan.
FI: It was higher rates across the euro curves yesterday from the start across all euro curves, in particular in the sub 10y area (2s10s ended 5bp steeper). Spreads to core/semi-core were mostly unchanged, with widening recorded to periphery. ECB pricing for the peak policy rates followed the general sell-off, adding 5bp to peak policy rate now pointing almost 3.5% again. We had a number of hawkish views yesterday as well with ECB’s Vasle, Kazaks and Holzmann but also Fed’s Bostic saying that the Fed may have to do more work after the strong labour market report on Friday. RBA hiked its policy rates by 25bp to 3.35% in line with expectations.
FX: NOK and SEK weakness continues to stand out in the G10 currency sphere. Both set new cycle highs – EUR/SEK rose above 11.40 and EUR/NOK above 11.10. EUR/USD continued to slide and dropped closer to 1.07 level.
Credit: Credit markets followed equities into risk-off mode on Monday. iTtraxx Main widened 3bp to close at 75.2bp, while iTraxx Xover widened 15.9bp to close at 395.1bp. Moreover, the primary market activity remains busy with more than 20 mandates announced with sizeable issuance from RWE AG, Ford Motor Co., British Telecommunications Plc, Danske Bank A/S, Husqvarna AB and Becton Dickinson & Co.
Nordic macro
The Swedish National Debt Office (SNDO) is to publish the January budget balance (8:00 CET). After three months of stronger than anticipated budget outcomes, we expect the numbers to weaken going forward, eventually leading to an upward revision in borrowing requirements by the SNDO.
