Wed, Feb 01, 2023 @ 09:30 GMT
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Yellen Backtracks On Fed Rate Comments

Market movers today

  • ECB Chief Economist Lane will speak on the current status of the ECB’s monetary policy strategy review. Fed’s Evans, Rosengren and Mester will also be out speaking during the afternoon.
  • In the US, the ADP employment report will give some indications ahead of non-farm payrolls released on Friday. The ISM services index will likely show another strong reading in April, as activity is boosted from the stimulus checks.
  • In Sweden, the March production value indices (PVI) and consumption indicator are due out (see Nordic Macro and Markets Section for more details).

The 60 second overview

US interest rate discussion: US Treasury Secretary Janet Yellen caused some uproar in financial markets yesterday, when she hinted that interest rates could have to rise somewhat to make sure the US economy does not overheat. She later in the day clarified that rate increases by the Fed was not something she was recommending or predicting, underscoring that the Fed was independent of political pressure. While US rates markets did not react significantly, her comments caused a significant rotation in stocks away from growth, tech and momentum stocks (see below).

Equities: What looked like a broad equity selloff starting in Europe yesterday ended in a big rotations story with investors moving out of growth/tech/momentum/duration plays. Bottom line equities lower and volatility higher. VIX shortly touched 21.85 before moving lower again and currently being just south of 20. Energy and materials managed to end higher although broad indices were lower and value outperformed growth by almost 1.5% yesterday.

The turmoil was relatively isolated to the equity market and this morning it seems like things are calming down again with Asian equities gaining. Mainland China, South Korea and Japan shut for public holidays.

European futures are up almost 1% after the underperformance yesterday while US ones are 0.2% higher.

FI: European bond yields declined yesterday with safe haven assets such as Bunds leading the rally. This was driven by a sudden negative sentiment in the equity markets. The primary market is still very active with plenty of new deals across the SSAs, covered bonds, financial and corporate bonds. Today, Greece is doing a 5Y bond through syndication as well as a regular German tap auction in the 5Y segment.

FX: Yesterday’s session was characterised by a strengthening of the broad USD and yield sensitive currencies in the likes of not least CHF and JPY. Among the losers were commodity currencies in AUD, NZD and NOK that all posted losses of slightly less than 1% vs the USD. EUR/USD moved back down towards 1.20, EUR/SEK almost reached 10.20 (the highest level since 13 March) and EUR/NOK moved back above the 10.00-figure. Notably GBP kept up well despite the souring global risk appetite.

Credit: Credit followed broad risk sentiment in red yesterday where iTraxx Xover widened to 255bp (+6bp) and Main to 51bp (+1bp). HY bonds also had a bad day and widened 5bp (with particularly the ‘B’ segment and below selling off) while IG held up better and finished unchanged.

Nordic macro and markets

In Sweden, a lot of data released this morning. First, April services PMI is likely to jump towards 70 on the back of manufacturing printing a near record high earlier this week, as they have a strong correlation. Secondly, both March production value index and the consumption indicator should give some extra colour on the Q1 and monthly March GDP indicators released last week. We expect a strong rise in both but particularly in consumption as we have seen retail trade and car sales significantly higher. Consumption will give details about how the “leisure” sectors have developed lately. Riksbank buys SEK 2.5 bn July and December T-bills and SEK 4 bn up maximum 6m maturity commercial certificates. The Debt Office issues SEK 2 bn SGB1060 and SEK 3 bn SGB1062.

In Norway, Norwegian housing prices have probably started to level off on increasing supply, prospects of higher rates and already high real prices. We expect prices unchanged m/m in April, but the OBOS-figures published earlier this week point to some downside risks.

Danske Bank
Danske Bank
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