Market movers today
Today Biden is set to meet with Congressional leaders on the US debt limit.
Otherwise it is a very light calendar with US NFIB small business optimism index as the only interesting data release on the global agenda.
In the Nordics the Riksbank minutes will take centre stage although we also get Norwegian average monthly earnings out this morning.
The 60 second overview
Markets. It has been a fairly quiet start to the week characterised by diminished bank concerns and slightly higher yields. There has been no major news overnight although slightly better-than-expected Chinese export figures suggest that global goods demand is keeping up for now despite eroded purchasing powers of consumers.
Credit conditions in the US. The Federal Reserve Senior Loan Officer Opinion Survey (SLOOS) released yesterday showed that banks reported tighter credit standards and weaker demand for commercial loans. The share of US banks that are tightening the terms on loans for medium and large businesses rose to 46.0% in Q1, up from 44.8% in Q4 2022.
Overall, this credit tightening was clearly not as worrying as the market had expected and feared and US yields moved higher after the release, while the USD broadly appreciated.
Mind the nature of bank concerns. At this stage the bank jitters that really started in March do not seem to have had as negative an impact on bank credit conditions and lending as feared by many investors. While it is still early to fully conclude on the ramifications we still emphasize that a smaller bank sector is a natural consequence of the Federal Reserve draining liquidity via quantitative tightening. The large quantitative easing programs following corona boosted banks’ balance sheets by construction and now we are seeing the reverse play out. As such we rather see the last months’ bank concerns as a natural symptom of tighter monetary policy than the epicentre of a systemic risk event taking place.
Fed pricing. Following the recent batch of data releases the markets are increasingly questioning the short-term outlook for rates with markets slowly beginning to price in a probability of another 25bp hike in June. We reiterate that should the situation in regional banks stabilise during the next month, labour markets stay tight, and inflation stay elevated (we get inflation tomorrow), a rate hike in June can increasingly be priced in by markets and/or rate cuts increasingly be priced out of the rate curve in H2. Our base case is that the Fed will pause for the remainder of this year – which in itself would mark a tightening of monetary policy amid markets pricing in close to three rate cuts ahead of new year.
Equities: Equities were little changed on Monday. Fed’s Loan officer survey initially triggered a negative reaction which eventually soothed during the session. S&P 500 closed unchanged with the odd mix of growth/quality sectors communication and consumer discretionary outperforming together with financials. Futures are a tad lower this morning.
FI: Global rates recorded a modest sell-off yesterday with UK out for holiday as markets digested hawkish comments during the weekend from Knot and Lane saying that the euro area inflation still has ‘a lot of momentum’. The front end led the sell-off in a curve flattening move. German 10y yields rose 3bp to 2.31%. Last night’s SLOOS from Fed pointed to tighter standards as expected, but not as bad as initially feared by markets, which sent the US front end slightly higher.
FX: Monday’s session delivered relatively muted moves in major space with EUR/USD hovering around the 1.10 mark and USD/JPY remaining around 135. Commodity currencies continue to be the big winner in the early part of the week with EUR/NOK trading just north of 11.50. EUR/GBP remained just above 0.87, the lowest level since February.
Credit: Yesterday was a bank holiday in the UK and overall it was a relatively quiet start to the week with no primary issuance in EUR credit markets. However, at least in the covered bond segment activity is picking up again with three new mandates announced yesterday.
Nordic macro
Riksbank Monetary Policy Minutes will be the centre of attention today. There are two aspects of the April decision to be looked into in particular. First, markets will scrutinize the rationale behind the fact that the Board decided on a rate path that attaches only a 60 % probability to another 25bp rate hike up to and including September. This is slightly less than what the market is currently pricing, although the markets thereafter prices rate cuts quite soon (contrary to Riksbank). Secondly, Governors Breman and Flodén dissented to the 50bp hike, opting for a 25bp hike to be followed by a higher probability for rate hikes in June and/or September, i.e., a smoother rate path. The reason for this deviation is also in focus, and whether any of these might be suggesting rate cuts earlier than signalled by ordinary rate path.
Separately, Riksbank vice governor Flodén, one of two dissenters, speaks at 12:00 on current monetary policy and the economy. A summary of the speech will be published.
 released yesterday showed that banks reported tighter credit standards and weaker demand for commercial loans. The share of US banks that are tightening the terms on loans for medium and large businesses rose to 46.0% in Q1, up from 44.8% in Q4 2022.){kind=link}