Market movers today
German Chancellor Scholz is meeting Russian President Putin to seek a diplomatic solution to the tensions around Ukraine.
In Germany, the ZEW expectation of economic growth is expected to show improving confidence amid waning Covid-19 concerns.
In the US, the producer price inflation may attract more attention given the widespread inflation concerns. Market consensus is expecting inflation pressures to remain unchanged in January compared with December.
The 60 second overview
Ukraine-Russia concerns ease slightly: Russia seems to backing more talks and German Chancellor Scholz said to the Ukrainian President that membership of NATO was not a priority, which could be a way to meet Russian demand that Ukraine should not become a member of NATO. Meanwhile, UK Junior Defence Minister had stated that a Russian attack could happen at no notice now. The RUB strengthened against the EUR.
Fed governors split on pace of monetary policy tightening: Yesterday, James Bullard repeated his hawkish message from last week saying: “I do think we need to front-load more of our planned removal of accommodation than we would have previously. Our credibility is on the line here and we do have to react to data.” In contrast, San Francisco Fed president on Sunday said it is paramount for the central bank to be measured and data-dependent.
China’s central bank kept its policy rate unchanged but injected loans through its medium-term lending facility. The Chinese equity markets increased on the back of the news.
Geopolitics initially sent equities lower on Monday. The sell-off was most pronounced in Europe in catch-up from Friday, but recovered into the session on positive comments on negotiations. Opposite to the risk-off session in Europe, US cyclicals actually outperformed. Growth cyclicals, such as consumer discretionary and tech led the gains, while healthcare and financials sold off. Energy the worst performing sector, reversing Friday’s performance despite oil price ending higher. S&P500 closed down -0.4%, Nasdaq unchanged, Dow and Russell 2000 -0.5%. Asian markets are mixed this morning and US futures pointing slightly lower.
FI: It was again a volatile day in the global financial markets with the ongoing uncertainty regarding the standoff between Russia and the West over Ukraine. Comments from various Federal Reserve officials show a significant difference in how much US monetary policy needs to be tightened and how fast this has to happen. Currently, the market seems to be leaning towards Bullard’s view given the continued bearish flattening of the US Treasury curve. In Europe, ECB’s Lagarde continued to stress the need for a gradual approach and thus we saw a bullish steepening of the EUR curves.
FX: The Scandies, commodity sensitive currencies and the EUR were the losers in yesterday’s session where focus very much remains on geopolitical risks and the prospect for tighter global liquidity conditions.
Credit: Credit remains under pressure amid the renewed tensions in the Ukraine/Russia stand-off. Sellers are clearly dominating the markets, where especially large credit ETFs are seeking liquidity by hitting even conservative bids in the market. Itraxx main widened 1.7bp to 66.8bp while Xover widened 6.3bp to 332.1bp. The latter comprises a widening of a full 74.5bp during the latest month. In cash the picture is similarly bearish with IG spreads widening 1.1bp and HY widening 11.2bp.
Nordic macro
No Swedish data today, however, both Stefan Ingves and Martin Flodén from the Riksbank board will discuss monetary policy at two separate events. However, we expect them both to mirror the communication in last week’s monetary policy report and press conference.
In Denmark, employer organisation DA is set to deliver private sector wage growth figures for Q4. The labour market has continued to steam ahead, so it will be interesting to see whether the tight labour market has begun to affect wage growth.
