Market movers today
- This morning the Swedish labor market survey is due out. Due to changes in LFS, the survey is not a good indicator for actual unemployment.
- There is also a focus on the ongoing political crisis in Sweden, but we do not think it will have much of a market impact, see Research Sweden: Sweden in political crisis.
- US existing home sales for May is probably not a major market mover but we are very interested in whether the US housing market cooled down further after some hot months by the end of 2020 and early 2021.
- Powell testifies to Congress on COVID-19 response and the economy tonight at 20:00 CEST. We do not expect any new signals from Powell and the questions from the politicians are usually not very interesting from a market perspective. Besides Powell, we also hear from Fed’s Mester and Fed’s Daly today.
The 60 second overview
Fed: New York Fed President John Williams yesterday said Fed is talking about talking about tapering bond purchases. Hence, Williams remains patient with respect to the normalization of monetary policy. In the other end of the spectrum, Dallas Fed and St. Louis Fed presidents Robert Kaplan and James Bullard again argued for initiating taper talks.
UK: UK has begun talks to join the trans-Pacific trading bloc, which includes among others Canada, Japan, Mexico, and Australia.
US: Inflow to Fed’s reverse repo rose to a new high of USD765bn yesterday. Hence, money market funds, government-sponsored enterprises etc. continue to increase their investments in the facility after the Fed hike the rate offered to 0.05% from 0.00% last week.
Equities: Massive comeback for equities yesterday without any single trigger to point at. Risk sentiment going from very sour in Asian trade (Nikkei225 -3.3%) towards optimistic in the US session (S&P +1.4%), having its best session since mid-May. Rotation going back into value cyclical and small caps. US indices yesterday, Dow +1.8%, Nasdaq +0.8%, Russell 2000 +2.2%. Losers from yesterday in Asia are coming back this morning led by Japan. European and US futures are slightly higher this morning.
FI: European rates were initially trading stronger following the move in the Asian session, but gradually sold off during the day on limited new info. The flattening recorded on Thursday/Friday by some 6bp in the 10s30s EUR swap saw some resistance and re-steepening 2bp. Again this driven by the US 10s30s cash curve with steepened 3bp yesterday.
FX: Scandies and commodity currencies rebounded vis-à-vis EUR, USD, and JPY yesterday. EUR/NOK dropped towards 10.20 and EUR/SEK fell to 10.17. EUR/USD climbed back above the 1.19 level.
Credit: Though Monday started out with credit indices continuing to widen, sentiment improved during the day, and iTraxx Xover closed 2½bp tighter (in 237bp) and Main ½bp tighter (in 48bp). HY and IG bonds widened around 2bp and 1bp, respectively.
Nordic macro
Sweden: Monday, a majority in the Swedish Parliament (Riksdag) supported a non-confidence vote against the Prime Minister Stefan Löfven and his Social democrat-Green coalition government. The constitution now gives the PM one week to choose between three options: 1) investigate the chances of forming a new government which is backed by the Riksdag 2) call for a snap-election (which then must be held within three months) or to resign. In the latter case, the task of investigating chances to find support for a new government is handed over to the speaker.
