Market movers today
- The main item this week is the FOMC meeting on Wednesday. We expect an uneventful meeting where the Fed will most likely keep monetary policy intact and not give new policy signals.
- The Riksbank convenes on Tuesday. Will there be new signals about the policy rate and will the Riksbank specify QE volumes in Q3? Since the February meeting, the pandemic has turned dramatically worse, which in conjunction with a depressed longer-term inflation outlook, leads us to believe that the repo rate path will stay put and the Riksbank remaining more open to a cut if needed rather than tighten policy.
- This week President Joe Biden is expected to release details of his second economic reform package focused on social spending financed by higher taxes on wealthy Americans.
- Today the Ifo report is published for April. From the US significant data releases include durable goods orders for March.
- Early Tuesday morning, we expect the Bank of Japan to keep its policies unchanged following last months’ policy tweaks in the wake of their review. We will get fresh forecasts for inflation, where we can expect 2023 to mark another year of not reaching the 2% inflation target, the last in governor Kuroda’s current five-year tenure.
The 60 second overview
US: Service PMI for April surprised on Friday rising to an extremely high level of 63.1 services. Manufacturing PMI was close to expectations at a still high level of 60.6 in April. Hence, economic activity is high in US as many people are vaccinated and states are reopening.
Copper: The copper price continues to rise amid recovery in the global economy, a weak dollar and tight supply. It is steadily moving towards the USD10,000/MT mark, which it has not seen since 2011.
Equities: Global equities closed mostly higher on Friday as strong macro and earnings outweighed the proposed capital tax hike. Value intense sectors outperformed slightly despite trailing yields, cyclical beat defensives and small caps beat large caps. S&P 1.1%, Nasdaq 1.4%, Dow 0.7% and Russell 2000 1.8%. On sectors, financials and materials took the lead. On the other end, defensives with consumer staples and utilities the only sectors in red. The buoyant sentiment lingers this morning with Asian markets mostly higher and US futures indicating a green start to the week.
FI: 10Y US Treasuries was volatile on Friday as the yield moved between 1.53% and 1.58% before ending the day at 1.58%. Bunds are also range trading around the -30bp level. We believe that the range trading will continue as we do not expect any major changes.
FX: USD was the big loser on Friday and in particular vis-à-vis EUR, which saw EUR/USD touch the 1.21 mark. EUR/NOK and EUR/SEK remained range bound and EUR/DKK continued to trade close to the 7.4360 low and recent FX intervention level.
Credit: There was a slight tightening tendency for EUR credit on Friday where iTraxx Xover tightened 3½bp (to 249bp) and Main ½bp (to 50bp). HY bonds closed 2bp wider and IG around ½bp tighter.