Market movers today
Today, country-specific PMI services indices are due out for Sweden, Italy and Spain (as well as final data for Germany, France, the euro area and the US).
We also get the US ADP jobs report ahead of Friday’s official jobs report.
The FOMC minutes from the December meeting is due out tonight. We doubt markets will react significantly, as FOMC members have already explained why they made another hawkish shift at the meeting.
The 60 second overview
Danmarks Nationalbank intervenes for 47bn: Yesterday we got confirmation on the FX intervention in the Danish market as the central bank had intervened for some DKK 47bn. This is the second highest amount that the central bank has intervened for in a single month. The large inflow to the FX reserve will likely fuel speculation that another unilateral rate cut is coming in Denmark. However, we do not want to rush to conclusion. Downwards pressure on EUR/DKK spot has eased to start the year and if the need for intervening in FX markets has ended for now, DN will probably draw the same conclusion as us and stay put on interest rates. Hence, this raises the speculation of a rate cut on Thursday, but for now we stick to our call that the Danish central bank will not cut policy rates, but will need to intervene more first.
Nordic Outlook: We have published our quarterly Nordic Outlook with updated economic forecasts this morning. The growth outlook remains constructive, but concerns are increasing over economies hitting their capacity constraints, not least in the labour market. However, there are differences between the countries, and while the case for rate hikes has strengthened in Norway, we still do not see enough wage and price growth in Sweden to warrant rate hikes there.
US ISM: In line with other activity indicators, the US ISM manufacturing also fell a tad, yesterday. However, noticeably and like signalled in European surveys, the prices paid component of this survey came down substantially (from 82 to 68) and new orders continue to run around 60. So for the US; this signals quite strong demand and easing price pressures. More tangible signs that inflation is indeed coming lower from here would be crucial to markets, as the (global) inflation levels have been and continue to be one of the key factors in all markets right now.
Equities: Equities rose yesterday in a roller-coaster session with huge dispersion between regions, styles and sectors. A massive move up in bond driving value stocks in strong outperformance of growth and tech universe. In addition, Covid/Omicron news lifting travel and leisure stocks as more and more data shows omicron is creating less severe illness. In the US, Dow +0.6%, S&P 500 -0.1%, Nasdaq -1.3% and Russell 2000 -0.2%. Asian markets are mostly lower this morning with Chinese tech shares in focus. The more value intense Japanese stocks are doing better. Futures in Europe and US are lower this morning.
FI: European government bond yields recovered some lost ground yesterday, but the US Treasury curve continues to steepen from the long end with the 30Y segment rising some 4bp relative to a modest decline in the 2Y yields of 1bp.
FX: EUR/USD was volatile yesterday but ended the day below 1.13. EUR/NOK dropped below 10.00, partly supported by higher oil prices. USD/JPY moved above 116 supported by higher US yields and a steeper yield curve. EUR/GBP moved closer to 0.83, as markets are pricing in a higher probability of another Bank of England rate hike in February. Danmarks Nationalbank (DN) bought DKK47bn of foreign currency in intervention in December amid renewed DKK appreciation pressure.
Credit: The primary credit market kicked off 2022 yesterday, with both FIG and corporate issuers in the market with deals that were solidly oversubscribed despite modest new issue concessions. In the secondary market, CDS indices saw decent performance, with iTraxx Xover tightening almost 2bp (thus taking it marginally below 240bp) and Main 0.2bp. HY bonds closed 3bp tighter and IG 0.5bp.
