Market movers today
- With no major economic releases today, market focus is on efforts to unblock the Suez Canal from the stuck container ship, which is obstructing global value chains.
- Later in the week, the key release is the non-farm payroll on Friday, but also euro area inflation, US infrastructure plans and
- Chinese PMIs on Wednesday followed by European and US PMIs on Thursday will attract attention.
The 60 second overview
COVID strategy in Germany: German chancellor Angela Merkel criticized the leaders of the 16 Länder (states) in an interview on Sunday saying that the federal government could step in in order to re-instate tougher lockdowns than the local ones imposed in many of the states. Germany registered 28,000 new cases on Saturday – three times the amount of new daily infections in early March. The interview comes after an ’emergency brake’ was agreed on at the beginning of the month with state leaders, requiring new lockdowns should the number of infections rise above a certain threshold, has not been implemented.
Inflation: The coming week brings preliminary inflation figures out of the euro area (Wednesday). We expect core to land at 1.1% and headline at 1.3%, which is in line with consensus. Looking further ahead we expect core inflation to rise further this year topping out at above 1.5% during H2 after which the core measure is set to fall back to pre-corona levels at just above 1% from the beginning of 2022. Generally inflation pricing is in line with our expectations, while we are slightly more upbeat on inflation during 2021 than the ECB forecast indicates.
Infrastructure package: Chances of US President Joe Biden being able to pass a major infrastructure bill during the fall of this year worth USD 3tn has been growing lately with centrist Democrats speaking in favour of the bill, as well as polling numbers showing that a majority of voters approve of the content as well as the funding plan. Funding of the bill will largely come from a higher corporate tax rate as well as an increase in payroll and capital gains taxes targeted the wealthiest Americans. Biden is expected to lay out more details regarding the bill on Wednesday.
Equities: Equities ended clearly higher Friday, sparked by the US that rallied into the close. Risk on, with most sectors in green and cyclicals outperforming defensives. On styles, value and growth were in line. Small caps outperformed slightly, after a string of weak sessions the past two weeks. This translated into quite uniform index movements in the US, with S&P 500 up 1.7%, Dow Jones 1.4% (both hitting new highs), Russell 2000 1.8% and Nasdaq 1.2%. Within sectors, energy, materials and tech (semis) were the best performers while consumer discretionary and utilities trailed, and communication services the only sector lower. Asian markets are catching up this morning, with Japan leading the gains. US futures are however dipping around -0.5%.
FI: Both EUR and USD curves steepened on Friday with 10y US treasuries up 4bp, which was also the case among core EGBs. This, however, still leaves bunds 10bp below the levels seen at the end of February whereas treasury yields have recovered some of the ground lost during last week. The short end of the USD curve does not seem to have been much affected by the Fed’s decision to once again allow for large US banks to start paying dividends despite the fact that in combination with the expiry of SLR relief, this could lead to further balance sheet strain. Note that euro area banks are also currently subject to a relief measure regarding the leverage ratio in that that reserves held with the ECB are not counted in the exposure measure. This is set to run until end of June.
FX: NOK was the big winner on Friday and JPY the big loser as FX market was buoyed by positive risk sentiment. EUR/USD rose slightly, but stayed below the 1.18 mark.
Credit: Friday was a good day for EUR credit – particularly CDS indices. iTraxx Xover tightened to 263bp (-8bp) and Main to 53½ (-1bp). HY bonds tightened 1bp and while IG bonds were only marginally tighter on average.