Market movers today
- Today’s main course is the FOMC meeting. Probably an uneventful meeting where the Fed will most likely keep monetary policy intact and not give new policy signals. Previously this month, Chair Powell stated that the US economy is at an inflection point. Since then economic data has continued to point to a robust economic recovery. See our preview here Fed Monitor Preview: Too early for the outcome-based Fed to change rhetoric, 21 April 2021.
- On the fiscal front, President Biden is due to give his first major speech to a joint session of Congress. His speech will consist of laying out the American Families Plan, a 1.8 trillion USD plan for child care, health care and education. Whereas the previous plan was an investment into physical capital, the American Families plan is an investment in human capital. Biden’s plan is expected to cost around USD1,800bn on top of the infrastructure plan, financed by higher individual taxes for wealthy Americans.
The 60 second overview
German politics: We have taken a deep dive into German politics ahead of the federal election on 26 September. Most importantly, The Green Party is likely to be king-makers in any future governing coalition, opening up for the potential for a more relaxed fiscal stance down the line. However, the debt brake will still limit expansionary fiscal policies. For more details see Research Germany: End of the “era Merkel” leaves German politics in unchartered territory, 27 April.
Riksbank: The Riksbank did not rock the boat as they kept the repo rate path unchanged at zero, left the door open to go negative and re-iterated that the SEK will appreciate only slowly from here, actually raising the trajectory, indicating a somewhat slower appreciation pace.
Equities: Equities little changed on Tuesday, and relative sector performance tightly bunched. In the US, S&P closed unchanged, Dow unchanged, Nasdaq -0.3% and Russell 2000 0.1%. Yields governed the relative sector performance with energy, financials and industrials in the top. Meanwhile, health care, communication services and tech trailed. Cautious trading in Asia as well this morning with indices mixed. US futures also indicate a muted opening, with S&P and Nasdaq futures slightly higher but Dow slightly lower.
FI: 10Y US Treasury yields rose around 5bp ahead of the FOMC meeting tonight. The upward move in US Treasury yields is driven by the expectation for a more upbeat Federal Reserve committee as well as the solid rise in the consumer confidence. Given the late rise in US yields, we expect to see a negative opening in European markets this morning.
FX: Scandies had another good day yesterday, while commodity currencies and JPY lost ground. EUR/NOK tested the 10.00 level and EUR/SEK traded towards the low end of the range, while EUR/USD held up close to 1.21.
Credit: There were only small moves in credit yesterday where iTraxx Xover widened 0.5bp (to 251bp) and Main was unchanged at 51bp. HY bonds closed 1bp wider and IG around unchanged.