Market movers today
- There are no significant global economic releases.
- In Norway, we expect mainland-GDP rose 1.7 % q/q in Q2, confirming our expectations of a quick recovery as restrictions were removed (see more details in the Nordic Macro section).
The 60 second overview
The market sentiment continues to be dominated by the negative impact of the delta variant as well as speculation of Fed tapering as shown in recent minutes from the latest FOMC meeting as well as Chinese government’s regulatory clampdown on private companies such as the tech companies as well as a slowdown in the Chinese economy.
Hence, we are seeing a stronger dollar on the back of weaker risk sentiment as well as support for safe-haven assets such as US Treasuries and German government bonds combined with wider credit spreads and weaker equity markets.
This morning there has been a broad based decline in equity prices across the Asian region and the VIX index has been rising in recent days.
However, given the lack of a clear direction in the markets and the uncertainty on both the macroeconomic outlook and Fed tapering, bond yields are caught in tight trading intervals, although we do see real interest rates continuing to be very low as shown e.g. in the auction yesterday of French inflation linked bonds, where an 8Y inflation linked bond was sold with a real yield close to -1.8%.
Equities: Here we go again with volatility coming back into equities and it always comes as a surprise to investors when equities have been on long trajectory higher. Yesterday it was centred on European stocks but volatility is elevated in Asia this morning as well. No surprise defensives outperforming on a day like yesterday but more interestingly, the tech sector holding up very well and showing much more defensive characteristics than one and two decades ago. Also, small caps underperforming with Russell 2000 posting sixth straight decline. In US Dow -0.2%, S&P 500 +0.1%, Nasdaq +0.1%, Russell 2000 -1.2%.
As mentioned above, Asian stocks are lower this morning with China once again leading the declines. US futures slightly lower while European futures are in green.
FI: Bond yields continued to decline despite the expectations of a tapering announcement from the Federal Reserve in September. We did see a modest widening between 10Y BTPS and 10Y Bund as most investors are preparing for a possible tapering by ECB. We do not believe that ECB will begin tapering after next month’s meeting.
FX: The weakening risk sentiment supported further dollar strength yesterday, notably against AUD and Scandies. Following the Norges Bank meeting yesterday, we still firmly believe in a September hike.
Credit: Credit saw a decisive sell-off yesterday with iTraxx Xover widening 3bp (to 237.6bp) and Main 0.7bp wider (to 47.1bp). HY bonds widened 4bp and IG closed almost 1bp wider.
Nordic macro
We expect mainland-GDP in Norway rose 1.7 % q/q in Q2, confirming our expectations of a quick recovery as restrictions were removed. If proven right, this would be significantly stronger than Norges Bank expected in the June MPR at 0.8 %, hence supporting the case for a September hike.
