Market movers today
The main data release this week is the US labour market report on Friday, although most of Europe will be on holiday then.
Today, we get ISM in the US and final versions of PMIs elsewhere, including Sweden and Norway which have not published preliminary versions. All other activity data for March so far has shown little or no impact from the banking turmoil, so that will likely also be the case for today’s releases.
Construction is perhaps the industry in the US that has been most surprising in maintaining high employment despite higher interest rates and general slowdown, today we get construction spending data for February.
Swiss inflation data should show declining headline inflation as we have seen elsewhere, although on a much smaller scale as energy prices have not lifted Swiss inflation as much as for example in the euro area, and so will not reduce it as much either.
Early Tuesday morning European time we will have a rate decision in Australia, where the RBA is expected to pause its rate hiking.
The 60 second overview
Oil prices jumped this morning after OPEC+ announced yesterday they would cut production by more than 1 million barrels per day starting next month. From July, there will be about 1.6 million barrels less supply also due to the extension of Russia’s existing supply reduction. As a response, Brent price briefly visited USD 86/bbl level this morning before retreating to just below USD 84/bbl. Just as markets were rejoicing at the lower headline inflation pressures on Friday, higher oil prices will now drive stronger inflationary pressures in the short term. The surprise move could also trigger renewed tensions between the US and Saudi governments.
US February Core PCE inflation eased slightly more than expected to 0.3% m/m (forecast 0.4%, Jan revised lower to 0.5%), with Fed’s closely followed Core Services PCE inflation also moderating (0.4%, Jan 0.5%). While UST yields ended the day lower, we continue to see some upside risks to short USD rates, as markets’ focus shifts back towards the upcoming key macro data releases. The Fed’s data from last Friday showed that the deposit outflow from small US banks had halted on the week ending March 22, while most leading indicators suggest US macro momentum remained upbeat in March (more details in Research US – Upbeat macro data keeps the Fed on a tightening bias, 31 March). On Friday, Fed’s Cook also emphasized that she will weigh ‘stronger momentum in economy against potential headwinds from recent developments’, while both Williams and Collins reiterated that Fed’s focus remains on inflation as US banking sector overall appears resilient.
Equities: Global equities were higher on Friday with the US session ending close to day-high. MSCI world was up more than 3% last week and thereby also ending with gains in March despite all the banking turmoil and confidence crisis. We argue March would have looked very different if macro data had been weak during the month. However, as seen repeatedly, investors and equity markets are much more resilient to shocks in cases where macro data are improving than vice versa. As a sign of the increased investor confidence, VIX took another leg lower Friday to a level just below 19. In US on Friday Dow +1.3%, S&P 500 +1.4%, Nasdaq +1.7%, Russell 2000 +1.9%. Asian markets are mixed this morning and the same goes for futures in Europe and US.
FI: A rather calm end to the week after a very volatile period characterised rates market on Friday in what was generally a rates down environment amid the euro area final inflation print. While headline inflation fell sharply to 6.9%, core inflation recorded yet another record high print at 5.7% challenging the case for central bank tightening coming to the end. However, markets have generally taken its cues from the headline figures as a gauge for the initial market reaction and only repriced later as focus turns to the central bank policy tightening path.
FX: EUR/USD lost some of its traction and declined below 1.0900 in the latter part of Friday. Quarter-end flows were likely the reason for some USD demand, offsetting some of the USD sell-off stemming from the positive risk sentiment for most part of last week. EUR/GBP is still fluctuating around the 0.88 level while the USD/JPY is trading around the 133-mark. The risk rally benefitted the SEK and sent EUR/SEK down to around 11.25, whereas NOK weakened despite improving sentiment and a rising oil price. EUR/NOK is trading around 11.35.
Credit: The credit markets ended last week on a relatively unworried note. During Friday, iTraxx Main tightened 3.5bp to 84.4bp while iTraxx Crossover tightened 16.5bp to 436.4bp. The positive development in the CDS market was also visible in the cash bond market, where secondary bond trading saw improving buying interests. Primary markets remained most of the week very active with a high issuance pace of both investment grade and high yield rated instruments.
Nordic macro
In yesterday’s election, Finland took a right-turn and said good bye to its social democrat PM Sanna Marin as the opposition bloc prevailed. The frontrunner in polls, center-right National Coalition party, won and got 48 seats (out of 200) in the new parliament. The national conservative Finns party secured 46 seats, while social democrats came in third with 43 seats. This was clearly a bloc election, resulting in a win for the three largest parties, and a loss for many others. The new PM will most likely be Petteri Orpo from National Coalition and he will now start negotiations to form a government. Different coalitions are still possible but a right-wing coalition with the Finns party and some smaller parties now looks likely, implying fiscal prudence: the National Coalition has said they are committed to balancing public finances by EUR 6bn but they have also promised tax cuts. Read more on Finland outlook – Conservative victory at parliamentary elections, 3 April.
