Market movers today
- In Sweden, a range of growth indicators for August are on the agenda
- The US ADP employment report will give some insights for non-farm payrolls released on Friday.
- In the euro area, retail sales for August and German factory orders are released.
- At today’s Polish central bank meeting, we expect unchanged rates along with consensus as many members have clearly communicated a preference for awaiting the updated November inflation projections before making changes to the policy stance
The 60 second overview
Energy crunch and ECB: The global surge in energy prices continued unabated yesterday as European gas prices jumped by another 23% to a new all-time high amid supply fears as the heating season is approaching on the Northern hemisphere. Oil prices also remained elevated above USD82/bbl after OPEC+ refrained from increasing production and high gas prices triggered even more “fuel switching”. The energy price surge added fuel to global bond yields, with US 10Y yields climbing back above 1.55% and 10Y German Bund yields breaking above the -20bp level. ECB President Lagarde yesterday reiterated that ECB should not overreact to supply shortages or rising energy prices, as monetary policy cannot directly affect these phenomena. But hawks in the ECB’s Governing Council are less sanguine, with Austria’s Holzmann warning that ECB is ‘clinging to the hope that the current inflation spike will be transitory’. Discussions about the persistence of inflation will likely gather pace ahead of the next meeting later this month, while markets are now pricing the first ECB rate hike for Q3 2023 – prematurely in our view (read more in Euro Area Macro Monitor – The tide is turning.
Central banks: Reserve Bank of New Zealand (RBNZ) joined the growing camp of central banks shifting away from their accommodative monetary policy stances and hiked interest rates by 25bp this morning. RBNZ also signalled that further rate hikes will likely be needed to tame inflation, but the planned tightening cycle could be interrupted by continued delta-strain outbreaks in Auckland, which is hurting business confidence and damping the growth outlook. Markets reacted muted to the decision as a rate hike was largely priced in, with NZD/USD initially spiking, but later reversing course.
Equities: Equities rebounded on Tuesday, following Monday’s tech-driven sell-off. Cyclicals beat defensives and growth generally beat value as tech rebounded. Somewhat peculiar sector composition though, as both banks and tech took the leadership. Defensives in the bottom, with real estate and utilities the only sectors lower. In the US, Dow Jones closed up 0.9%, S&P 500 1.1%, Nasdaq 1.3% and Russell 2000 0.5%. Implied volatility inched slightly lower. Opposite moves in Asia this morning though, with markets down another -1% and Mainland China is still closed for holiday. Similarly, US futures dipped into red again this morning.
FI: Global yields rose again after better than expected US PMI data and ahead of the US labour market report that is released on Friday. The data is expected to support the Federal Reserve in its QE tapering plans. However, there is plenty of uncertainty in the market given rising inflation, the escalating energy crisis, the uncertainty on US fiscal policy while at the same time the recovery seems to be fading. The best alternative to “hedge” this uncertain environment are still inflation-linked bonds and inflation swaps in our view, despite the significant rise in the break-even rate (or very low real yields).
FX: In a market characterised by reflation, it is no surprise to see NOK as the top-performer. Meanwhile, fundamentally we are very sceptic that this market environment can persist for long.
Credit: Credit markets saw some stabilization yesterday, with Xover tightening 1bp and Main 0.4bp. HY bonds tightened 3bp and IG 0.5bp.
Nordic macro
In Sweden three out of four important growth indicators are released today. So far, hours worked has been released for August, showing a steep decline and putting the average July/August level a mere 0.2% above Q2 level (seasonally adjusted). The production (PVI), consumption and GDP indicators now stand in line. All of these showed very strong prints for July (2-3 % above Q2) and the question is now whether these will show a similar dip as hours worked. A slight increase in August retail sales is a positive sign for the consumption indicator, but car sales are down and it probably boils down to whether covid-dented ‘stay away’, services-related consumption rose or not.
