Market movers today
Geopolitical events are stealing the spotlight during an otherwise uneventful week. Ukraine’s counter offensive seems to have finally started although it is being overshadowed by the destruction of the Kakhovka dam yesterday. Ukraine is accusing Russia for blowing up the dam, and the US intelligence hints to same direction, but Russia has not claimed responsibility. By late Tuesday evening, more than a thousand people had been evacuated and 40,000 people were estimated to be affected by the flooding. While Ukraine’s spring offensive is their best opportunity to defeat Russia, the massive flooding of the Dnipro river will now complicate operations on both sides.
On data front, today brings Germany’s industrial production and US trade balance data for April.
We also have a few ECB speeches scheduled just before the quiet period begins tomorrow.
The 60 second overview
EU: With the dry weather spell ongoing in Europe, we observe a risk for a stagflationary shock hitting the euro area. We observe that the water level in the key water pass way ‘Kaub’ in the Rhine is well below the past 10y mean level. Compared to last year’s level it is +50cm higher at this point in time. Last year this was a driver of higher energy, notably higher natural gas prices, as this pathway is also used to transport coal to the power plants.
EUR/USD declined below the 1.07 mark yesterday on generally cautious market sentiment and relatively weak tier 2 releases from the euro area. German factory orders and euro area retail sales both declined more than expected, while the ECB found an across-the-board deterioration in its consumer expectations survey for April – the view on inflation, nominal income growth, nominal spending and house price growth all waned, while expectations for economic growth remained in negative territory. Overall, clear indications of weakening demand in the euro area.
China-US relations: Media reported that US secretary of state Anthony Blinken is eyeing a visit to China to meet Xi in the coming weeks.
Equities: Equities were softly higher yesterday in thin news flow. Cyclicals led the march higher, but the outperformance is no longer limited to FANMAG but also financials and real estate, especially regional banks. Small caps bounced back after the sell-off on Monday, with Russell 2000 surging +2.7% vs S&P 500 +0.2%. Futures are basically flat this morning.
FI: The ECB’s CES initially took European yields lower across the maturity spectrum as inflation expectations declined in April. That said, longer dated issuance helped steepen the curve.
FX: AUD rallied further yesterday and Scandies sold off on a relatively quiet day on the G10 FX market where notably oil market lost momentum from OPEC+’s output cut announcement. EUR/USD remained anchored around the 1.07 level. EUR/SEK climbed towards last week’s high and EUR/NOK rose close to the 11.90 level.
Credit: iTraxx Xover tightened 7.4bp and Main 1.3bp, with both indices closing at the tightest levels since prior to the SVB debacle. Primary market activity continued at a high pace and both OP Corporate Bank and DNB were in the market in preferred senior and Tier 2 format, respectively.
