Market movers today
Today is the last day of the ECB Forum on Central Banking in Sintra. A policy panel is scheduled with the heads of ECB, Fed, BoJ and BoE. We also have speeches from ECB’s de Guindos and Lane scheduled.
We get the first indication of where euro inflation is headed in June with flash figures out of Italy, one of the countries where inflation remains very high with 8.0% in May.
In Sweden, May household lending data is due, and in Norway, May retail sales will be released. See more below.
The Danske Morning Mail will be on summer break from 3 July to 4 August.
The 60 second overview
ECB speak: Yesterday, at the Sintra central banking forum, ECB President Lagarde confirmed that a 25bp hike in July is a done deal unless there is a material change to the outlook. She also said it is likely the ECB will not be able to declare the end of its hiking cycle anytime soon. Governing Council member Wunsch elaborated the ECB reaction function by saying that core inflation, over the next three readings, should give a clear reading it is heading down – and if not, more hikes will be necessary. This morning, GC member Lane added that rates must stay restrictive to reach 2% inflation and that it is not reasonable to price in rapid rate cuts.
Russia update: Yesterday, Russian security service FSB announced it has officially dropped charges against Wagner fighters. Wagner leader Prigozhin’s plane left Russia for Belarus yesterday and President Lukashenko confirmed his arrival. The implications from relocating Wagner fighters to Belarus are still unclear but e.g. neighbouring Poland has expressed their concern over the matter. There are still many unknowns regarding the whole saga. In a report published yesterday, Institute for the Study of War (ISW) concludes that Putin is afraid that killing Prigozhin would make him a martyr, and instead is aiming at ruining his reputation. The New York Times has reported that Russian General Sergei Surovikin, who acted as the Commander for Russian troops in Ukraine until January, had known about Prigozhin’s mutiny in advance. However, on Saturday Surovikin made a public appeal to Prigozhin for him to stop his attempt.
Equities: Global equities were higher yesterday driven by a change in the US risk assessment. A strong and broad-based set of macro data released in the afternoon in Europe made investors lower the risk of near-term recession and lift soft-landing expectations. Market closed near best level and VIX came back below 14. The risk-on tone resulted in a cyclical growth rotation with health care and energy being left behind. In US Dow +0.6%, S&P 500 +1.2%, Nasdaq +1.7% and Russell 2000 +1.5%. Asian markets are mixed this morning with Japan catching up to the US session while more tech-heavy markets are lower on stories about more restrictions coming in the US on chip export. Same picture in western futures with European higher while US ones are lower led by the Nasdaq future.
FI: Tuesday’s session was relatively calm despite the hawkish tones expressed by Lagarde in her introductory speech at the Sintra conference. German yields range traded during most of the session, but ended up rising about 4-5bp in the last hours of the European window. Similarly, US yields was little changed during most of the day, but ended the day up 7-8bp on the back of a heavy flow of surprisingly strong US data points being released in the afternoon (Conference Board consumer confidence). Markets are still pricing in a 70% probability of a rake hike of 25bp at the FOMC meeting in July. We still expect status quo. Intra euro-area spreads tightening marginally.
FX: The EUR rise yesterday likely owed to positive risk sentiment and a drop in energy prices rather than hawkish comments from ECB President Lagarde at the ECB Forum. JPY and NOK continue to struggle.
Credit: While the summer break is approaching, issuance continued yesterday in the EUR credit market, with French electricity operator RTE and Dutch telecom KPN both placing new bonds. In the financials segment, Bank of Ireland stood out by attracting a solid EUR1.5bn order book for its EUR750m 8NC7 green HoldCo. In contrast, Portuguese cooperative Credito Agricola was forced to downsize its 4NC3 social senior preferred bond by EUR100m to EUR200m as demand proved insufficient, suggesting that investors remain picky in terms of which names they buy despite the high yield on offer of 8.50%. CDS indices were broadly tighter, with iTraxx Main closing at 78bp (1bp tighter) and Xover at 417bp (7bp tighter).
Nordic macro
May household lending in Sweden is released this morning at 08.00 CET. Over the past six months or so it has come to a virtual standstill. A surprise would be to see it jump higher.
Norwegian retail sales have been trending down for almost two years now, driven by a shift towards consumption of services and the decline in households’ purchasing power. After the sharp fall in April, we expect retail sales to be more or less flat in May.
