Wed, Feb 01, 2023 @ 08:47 GMT

Riksbank Day

Market movers today

  • Sweden’s Riksbank is expected to keep the repo rate path flat at zero and also keep the QE program unchanged. Focus will be on policy outlook signals, but we expect relatively muted reactions in the money and FX markets.
  • We expect the Norwegian PMI to climb to 60.0 in June from 58.5 in May, as global manufacturing indicators have continued to improve and the manufacturing side of the regional network survey was very encouraging.
  • The June ISM manufacturing will also be monitored for any signs of accelerating/subsiding supply side constraints and inflationary cost pressures.
  • OPEC+ is widely expected to decide to continue its slow-moving normalisation of production levels at the meeting today.

The 60 second overview

Global macro: After the official Chinese manufacturing PMI index for June fell slightly to 50.9 yesterday, this morning the private PMI index also fell back from 52.0 in May to 51.3 in June. This was the third month in a row recording a fall in the index. In yesterday’s official release, the export order index fell for the third consecutive month and is now at 48.1 from a peak of 51.5. It may be a sign that the global manufacturing cycle is about to turn. We generally look for a peak in global manufacturing in Q3, see Research Global – Manufacturing cycle to peak in Q3, 21 June. For a recap of the global economic and market developments, see our Monthly Executive Briefing – Ongoing recovery in the US and the euro area, 30 June.

Sweden’s political crisis: The speaker of the Swedish parliament has given Moderate leader Ulf Kristersson the first chance of trying to form a government. The parliament is expected to vote on Monday. His chances remain slim, even counting the so called wild cards, since his team is in minority (174 mandates vs 175 for Löfven). Negotiations are ongoing, but so far without any openings that would make it easier for Kristersson. However, to his advantage, if he succeeds he would probably be able to push his budget through the parliament. If he is loses the vote on Monday, the ball probably goes to Löfven. He might have a better chance to be accepted by the Riksdag, but as it looks now his budget will eventually fall. If that happens, he will resign he says. Hence, it is still very complicated, and the risk for a snap election is far from ruled out when the speaker rounds are done. So far, the political turmoil has had no impact on markets.

Equities: Another muted session for equities on Wednesday, in range-bound trading. Value cyclicals outperformed, reversing some of the growth outperformance in recent days. Large cap industrials and energy were the favoured sectors, while communication services and real estate lagged. Despite cyclicals outperforming and VIX eding lower again, small caps underperformed. In the US, S&P 500 0.1%, Dow 0.6%, Russell 2000 0.1% but Nasdaq -0.2%. Sentiment spreading to Asia with muted markets. US futures slightly higher though.

FI: Yesterday, markets recorded a strong rally in the European fixed income space almost from the morning as markets traded into month and quarter-end. The session was generally with little new info where the euro area inflation figures came in as expected. While the cash curves bull flattened with Bunds 3.8bp lower at -0.21%, the 10s30s EUR swap was yet again broadly unchanged on the day. 30y Buxl ASW spread widened to 29.5bp, which compares to 27bp by the end of last week.

FX: Broad USD gained in yesterday’s session while JPY and CHF both posted losses despite the decline in yields/risk off. NOK continues to trade heavy with EUR/NOK now above 10.20. EUR/SEK remains little changed as we enter the Riksbank meeting. EUR/GBP is now comfortably below 0.86 again.

Credit: CDS indices were under pressure while cash bonds held up better yesterday where iTraxxx Xover widened 2bp (to 232bp) and Main ½bp (to 47bp). HY bonds widened 1bp and IG closed unchanged.

Nordic macro

The Riksbank’s monetary policy decision at 09:30 is today’s clue for the Swedish krona. As discussed in Reading the Markets Sweden we expect that the Riksbank will welcome a stronger recovery than anticipated but at the same time stick to a prudent approach by announcing a flat zero repo rate until Q3 2024 while keeping the verbal door open for a rate cut. We would describe this as relatively soft but also a consensus view and thus market neutral. A tightening bias is priced in already, but if they surprise by inserting a small hike at the end of the horizon it could still be viewed as semi hawkish and send EUR/SEK temporarily lower.

In Norway, we expect the manufacturing PMI to climb to 60.0 in June from 58.5 in May. Global manufacturing indicators have continued to improve in June, and the manufacturing side of the Norwegian regional network survey was very encouraging.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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