Market movers today
We kick off the week with March euro area industrial production. The German data from last week indicates we are in for a significant decline.
The European Commission also publishes a new economic outlook.
In the US, we have both Fed’s Bostic and Kashkari on the wires.
In Sweden, we expect a large decline in April inflation, see more below.
Overnight, we get a flurry of data out of China. Particularly retail sales will be interesting, as the consumer is set to drive the recovery.
The 60 second overview
Markets: This morning Asian equity markets are mixed. At the time of writing futures point to a red opening in the US and a green opening in Europe. On Friday, US equities generally ended in negative territory, while European equities closed higher. US yields were higher on the back of the University of Michigan 5y inflation expectations edging higher to 3.2%, the highest level since 2011. In our view this underscores that the Fed is unlikely to look towards cutting rates anytime soon. Elsewhere, the USD broadly appreciated, oil fell and gold was unchanged.
Sweden. For today’s Swedish April inflation numbers we expect CPIF and CPIF excl. Energy to slow to 7.8 % YoY and 8.5 % YoY respectively (from 8.0% and 8.9% in March). This is 0.1 percentage points below Riksbank’s forecasts on both. Given the high level of inflation this would be seen as negligible deviations and of little consequence for Riksbank policy as we see it.
Generally easing global inflation. Inflation drivers continue to paint a mixed picture, but inflation is likely to head lower through 2023 in the US and euro area. Price pressures from food, freight and energy have clearly eased. Labour markets remain tight, but underlying wage and inflation pressures have shown tentative signs of easing in the US. In euro area, services sector remains the key inflation driver, as price pressures continued to accelerate in April. Despite the uncertainty around financial stability risks, we expect the ECB to hike rates three more times, and the Fed to stay on hold for now. In China, CPI dropped further to 0.1% y/y in April from 0.7%; hence inflation is getting closer to deflation pointing to more stimulus. Read more in Global Inflation Watch – Diverging core inflation trends, 11 May.
Turkish election. With almost all votes counted, it seems neither Erdogan nor his rival will reach the key threshold of 50%. A second poll on 28 May looks likely. In the meantime, TRY volatility could be elevated.
Equities: Global equities slightly lower Friday, dragged down by US. The one thing sticking out Friday was the preliminary consumer confidence report from Michigan. Both current assessment and future expectations were lower and at the same time long-term inflation expectations ticked higher. Put on top of this that Friday still means lack of confidence in medium sized banks in the US and we have what it takes to bring equities lower. Value managed to outperform although US banks were under pressure. In US Dow -0.03%, S&P 500 -0.2%, Nasdaq -0.4% and Russell 2000 -0.2%. Asian markets are mixed this morning with Japanese equities outperforming. European and US futures in small gains this morning.
FI: It was a fairly muted rates session on Friday, amid EGBs higher across the board on hawkish ECB and Fed comments and higher than expected University of Michigan inflation expectations. On Friday night, Fitch affirmed Italy’s rating at BBB and a stable outlook, despite the significant debt to GDP level. On Friday, Moody’s has Italy up for review, where they are on negative outlook, but we do not expect a downgrade.
FX: Friday’s session was characterised by broad USD appreciation in the G10 space ending the strongest week for the DXY USD index since February. EUR/USD fell below 1.09 and rising US yields on the back of Friday’s stronger-than-expected long-term Michigan inflation expectations took USD/JPY above 135. EUR/NOK fell below 11.60 while EUR/SEK was little changed around 11.26.
Credit: CDS indices were unchanged last week, with iTraxx Main at 86bp (0bp) at Friday’s close while Xover closed at 450bp. In terms of issuance it was a relatively busy week with nearly EUR18bn issued in corporate bonds, while EUR10.6bn was printed in financials, of which EUR7.3bn was in covered bonds.
