Market movers today
The main data releases today will be the Spanish flash inflation, euro area economic sentiment indicators and the US conference board’s consumer confidence index for May.
The Spanish figures will offer the first hints about the euro area flash HICP data due for release on Thursday where consensus is looking for modest easing in core inflation pressures.
Regarding monetary policy, ECB’s Holzmann and the Fed’s Barkin will be on the wires today.
Overnight, the Chinese NBS PMIs will be released. Early indicators point towards a stabilization in the manufacturing index after a big drop in April, while we expect the service PMI to decline modestly from the current elevated level.
Later in the week, markets will closely follow if the US congress will be able to pass the preliminary debt ceiling agreement, with the House of Representatives expected to vote on Wednesday. Markets will also keep an eye out for some key US data releases, including the April JOLTs on Wednesday, May ISM Manufacturing on Thursday and Jobs Report on Friday.
The 60 second overview
US and UK markets were closed yesterday, but there was a solid decline in the European government bond yields and the curve flattened from the long end. There was a modest loss in the European equity markets. In the US, President Biden and the republicans are getting closer to a deal on the debt ceiling thereby avoiding a default on the US government debt.
We see a mixed picture in the Asian equity markets where some markets are posting small gains while others are posting small losses. US Treasuries are rallying from the long in the Asian trading hours on the back of the expected deal on the US debt ceiling. We have also seen a solid decline in the yield on short-dated T-bills (maturing in June), where the yield has declined by more than 100bp during the last few days. Part of the deal includes a cap on public spending in the next two years. This is likely to dampen growth in the US economy, and the debt ceiling will be suspended until January 2025.
Yesterday, the Spanish socialist government called a snap election after the government lost significantly to the conservative opponents in the regional and local elections on Sunday. The election will be held on July 23. The impact on Spanish government bonds should be limited although we could see a modest short-term widening relative to Italy and Portugal. However, Spain together with the other peripheral markets have been the best performing government bond markets among the Euro area government bonds as shown in our weekly on the European fixed income market.
In Turkey, President Erdogan won the presidential election and will serve another 5-year term. This sent the Turkish lira weaker against the dollar given the uncertainty regarding the outlook for the Turkish economy. See more in our comment on the Turkish election, Research Turkey – Time to fasten seatbelts as Erdogan secures another term, 29 May.
FI: The UK and US markets were closed yesterday, but in the European markets bond yields declined and the curve flattened from the long end. Spreads between the core-EU and periphery were stable despite the Spanish government calling a snap election for 30 July after losing in the local elections.
FX: A quiet start to the week without much to report. Sustained Scandie weakness and a slightly stronger USD. With both US and Europe back in action today we expect a slight uptick in volatility compared to yesterday.
Credit: Credit spreads were supported towards the end of last week by improving risk sentiment, sending iTraxx Main 2bp tighter compared with the previous week thus closing at 80bp on Friday, while Xover was tighter by 9bp to close at 425bp.
Nordic macro
In Sweden, the revised GDP figure for Q1 will be released. The GDP indicator has indicated quarterly and yearly growth of +0.2%, which is much higher than our forecast of -1% q/q in the Nordic Outlook report in April. If there are no significant revisions, this suggests that the Swedish economy is on track to avoid a recession in 2023, assuming no other changes are made to our forecasts for Q2-Q4. However, the economy remains divided, with pressure on households and the housing market, while the production side and labour markets continue to do OK. Since this data pertains to Q1 and therefore is more backward-looking, both the NIER survey and PMI figures also today will be very interesting, as they provide more forward-looking information. Both the NIER and PMI surveys have presented a somewhat mixed picture so far. The PMI’s have held up relatively well, especially in the services sector, whereas the NIER survey indicates the opposite, with better-than-normal sentiment among manufacturers but pressure on the services sector. The NIER survey covers a broader range of businesses with a heavier focus on consumer activity, which likely explains the divergences. In addition to overall sentiment, we will pay special attention to price plans.
Manufacturing prices have been trending lower for about a year, while price plans have been more resilient in the services sector. The development of these will most likely be the most interesting, giving some more clues on how fast the inflation will move lower. We will also look out for hiring plans, household sentiment, and the order inflow.
Furthermore, there will be an open hearing with the Board of the Riksbank on monetary policy for 2022. Although this discussion will be largely backward-looking, it might provide some comments or clues regarding their perspective on the latest inflation data or the weakness of the SEK.
