Market movers today
Financial news and perhaps follow-ups to the ECB meeting yesterday will likely be the most important things to watch today. On the data side, we get the Michigan consumer confidence including inflation expectations in the US which the Fed has cited in the past, and also industrial production and capacity utilisation for February. In the Euro Area, we get the final HICP for February, but unlike with the January figure, we do not expect major revisions this time.
The 60 second overview
Markets stabilised somewhat yesterday after extreme volatility on Wednesday. Equities ended in positive territory, US Treasury yields higher, USD broadly weakened and crude oil prices rose. The positive momentum was initially led by a rebound from Credit Suisse after news that the bank could lend CHF54bn from the Swiss National Bank, which alleviated some concerns. ECB also helped calm markets at the press conference after the monetary policy decision (more below) by communicating that the bank is ready to respond to preserve financial stability while still being committed to fighting inflation. In the US, First Republic Bank secured USD30bn from the largest national banks in an attempt to bolster the bank’s finances, as lack of confidence from investors and customers is weighing on the bank. Additionally, data from the Fed yesterday showed that banks have borrowed USD152.9bn through the emergency loan programme and another USD11.9bn through the newly introduced Bank Term Funding Program (BTFP) essentially reversing the Fed’s QT.
The ECB hiked its three key policy rates by 50bp yesterday and gave no indications for the coming rate path in line with our expectations. The ECB communication clearly highlighted the risks prevailing to the economic and inflation outlooks, but should the baseline prevail once the current turmoil subsides, more rate hikes may be needed. We keep our call for a 50bp rate hike in May due to the still high underlying inflation, and a peak policy rate reached in July of 4%.
Lagarde’s communication showed a clear preference and focus on inflation over financial stability. For example, the first sentence in the ECB decision was ‘Inflation is projected to remain too high for too long’. She also said there is no trade-off between price stability and financial stability. While we believe that it is a very fine balance, the fact that she says this clearly shows to us the ECB is willing to take the necessary measures to allow it to further hike and fight inflation.
Equities: Global equities rallied yesterday as the fear of a prolonged liquidity crisis in banks faded. Please note, banks were not the biggest outperformers yesterday. Banks were (of course) rallying but cyclical growth was the biggest beneficiaries of the relief rally yesterday. If the fear of a banking sector meltdown is abating now, we will be left with yields at a lower level which supports growth versus value and in that perspective no surprise to the see the rotation yesterday. Growth has outperformed value by almost 5% this week while quality has outperformed the broader market with 2%. In US yesterday, Dow +1.2%, S&P 500 +1.8%, Nasdaq +2.5% and Russell 2000 +1.5%. Asian markets catching up this morning with green screens across the region. Solid gains in European futures while US fturues positive but in limited gains.
FI: US Treasury yields ended the day higher on the back of several of the big US banks pouring money into First Republic Bank as expectations for monetary tightening from the Federal Reserve rose once again. We stick to our call of 25bp at the upcoming meeting even though there has been speculation in the market that the Federal Reserve would be on hold.
FX: ECB went on to hike by 50bp, but refrained from giving any guidance for the May meeting. EUR/USD traded remarkably stable following the decision, but overnight the cross found some support. Following the past days’ tug-of-war between the hawkish inflation print and fragile risk sentiment, the SEK also found some support as the systemic risks faded somewhat yesterday. Neighbouring NOK, however, is clearly lacking any support currently, with NOK/SEK falling below 0.98 for the first time in 18 months.
Credit: Credit markets rebounded on Thursday after the Swiss central bank pledged to support Credit Suisse with up to USD75bn in liquidity, if needed. Major CDS indices rallied on the news, with Itraxx main tightening 4.8bp to close at 99.4bp, while Itraxx Xover tightened 24.1bp to close at 483.2bp. Primary markets were still somewhat muted, despite the turnaround in risk sentiment.
Nordic macro
Danmarks Nationalbank (DN) followed ECB and hiked its key policy rate 50bp to 2.60%. We expect the Danish central bank to track ECB the coming months where more rate hikes await, which brings the key policy rate to 3.60% in July.
Sweden: The February Labour Force Survey (LFS) is released at 08.00 CET. We expect the seasonally adjusted unemployment rate to have remained stable at 7.3 %. Thus far, the Swedish labour market has been surprisingly sanguine and we do not see that changing today.
