Market movers today
On the data front we look for German ZEW for January, which could very well slip further due to the triple headwinds from COVID, eroding real income and supply side bottlenecks.
UK releases employment report where focus is on wage growth.
In Sweden, the Riksbank arranges an open forum on the relation between the inflation target and wage formation, where representatives from the labour union, employers union, researchers and, from the Riksbank, Per Jansson will participate. This is a very interesting and relevant topic, also for the financial markets, given the upcoming wage negotiations. Separately, Stefan Ingves is scheduled for a panel discussion on digital currencies, where he will probably not touch upon issues related to monetary policy.
This afternoon the US releases the first regional business survey for January with the Empire index.
The 60 second overview
Markets: After a quiet start to the week with US bond and equity markets closed yesterday this morning we have seen a renewed upward pressure on global yields driven by the USD curve. Most prominently the 2Y US Treasury yield has moved above 1% for the first time during the COVID-19 crisis as markets adjust to a base case of four 25bp rate hikes from the Fed this year. The big developed market equity indices are trading in red this morning with technology heavy indices such as the Nasdaq underperforming peers.
Oil price: While negative risk appetite and a stronger USD tends to be negative for commodities, this morning we have seen the Brent crude oil price move above USD 87/bbl. This is the highest level since 2014. Restricted global supply, renewed optimism on the mildness of Omicron and recent geopolitical tensions have been the primary drivers for the move higher in oil in recent weeks. Our base remains that the oil price will stabilise and eventually move lower later this year on a stronger USD, OPEC+ normalising supply and on the global economic policy tightening weighing on demand.
Steady Bank of Japan: As expected, there were no changes to the Bank of Japan policies this morning. They did, however, change the risk assessment on the outlook for prices from “skewed to the downside” to “balanced” for the first time since 2014 and revised up their inflation forecast to 1.1% for the fiscal year 2022 from 0.9%. We see no signs of discussions of a rate hike before the 2% inflation target is reached, as rumoured on Friday, something that could however also be addressed at the press conference (post the deadline of this report). With at least some of the risk of early tightening removed, JPY weakened somewhat around the time the BoJ decision was announced.
Equities: Equities started the week on a higher note in a relatively quiet session as US was closed for Martin Luther King Day. Some of the health care and tech stocks that have been lagging in the first two weeks of 2022 got a lift as US bond market also was closed yesterday. Asian markets are lower this morning just as US and Europe futures are pointing lower led by growth stocks.
Fixed income: There has been a modest rise in European bond yields on the back of the rising US yields, the curves flattened modestly between 10Y and 30Y and steepened modestly between 2Y and 10Y.
FX: It has been a quiet start to the week in FX markets with moves limited to less than 1 historical standard deviation across majors. Overnight the USD has rebounded with US markets returning from holiday while NZD, AUD and NOK have posted losses just shy of 0.5% vs the greenback.
Credit: Yesterday we saw continued modest widening in the synthetic indices, with iTraxx main some 0.6bp wider to 52.7bp and Xover 2.1bp wider to 259.2bp. The primary markets remain wide open exemplified by Heimstaden Bostad doing a two-trance EUR benchmark deal with a combined size of EUR1.2bn.
