Market movers today
Market’s focus remains on Ukraine and notably on politicians’ response to the Russian invasion of Ukraine.
From Sweden, we will get the labor force survey for January and in the afternoon, the US weekly jobless claims are due for release. We will also have a range of central bank speakers on the wires, including ECB’s Schnabel and Fed’s Daly, Bostic, Barkin and Mester.
The 60 second overview
Russia launches incursion: Russia has launched a military incursion into Ukraine. At the time of writing, the market reaction appears very much in line with what one would expect: US treasury bond yields are falling and oil has increased a bit overnight to USD101/barrel from the high 90’s yesterday. Equity futures are printing -4% to -2%, which is in line with recent trading sessions. In FX, USD/RUB has jumped to our estimated ‘worst case’ scenario at 87.00. Naturally, EUR/USD has taken the brunt of the effect in non-RUB assets, so far, dropping roughly a small figure from yesterday to 1.1236 and Eastern European currencies (especially PLN) have weakened. The market reaction appears highly in line with what we would expect from the notion of rising risk aversion towards European assets as well as seeing a negative effect from a further rise in energy prices. Naturally, the next step will be to view the reaction from politicians in terms of sanctions.
Final euro area HICP inflation figures for January supported the case of ECB hawks pushing for a faster policy normalisation pace, with strong evidence of building underlying inflation pressures from cost-push inflation (i.e. higher input costs working their way through the pricing chain and being passed on to consumers). As we expect supply chain pressures to persist at least until H2 22 and the demand environment for price increases remaining unusually favourable for companies, we expect goods price inflation to stay elevated this year. We now foresee HICP inflation in 2022 at 4.7% due to higher commodity and goods price inflation pressures and expect euro area core inflation to average 2.4% in 2022 (see also Euro inflation notes – Cost-push inflation: the genie is out of the bottle, 23 February).
When will ECB raise interest rates? There were significant moves in the short end in European fixed income yesterday, seeing 4bp higher yields in 2Y area during the day. The reason behind this move early yesterday may partly have been comments from ECBs Holzmann (hawk) about first rate hike in summer and before ending APP. This would be at odds with the current expectations.
Equities: Futures have plunged -2% overnight as Russian troops invaded Ukraine. Markets have been rightfully discounting parts of that risk, for instance energy being the top performer yesterday in a clear risk-off session. Cyclicals have been selling off (especially growth cyclicals such as tech and consumer discretionary) and defensives and energy the groups faring the best. Most markets are already in correction territory: S&P -11% YTD, Nasdaq -20% (!), Nordics 10-15% (with Oslo the exception). S&P500 stripped of another -1.8%, Dow -1.4%, Nasdaq -2.6% and Russell 2000 1.8% yesterday. As said, futures are plunging another -2% this morning and Asian markets 2-3%.
FI: Yesterday, markets again saw intraday volatility most of the session after a turbulent session Tuesday.
FX: Russia has launched a military incursion in to Ukraine. Rising risk aversion and energy costs weigh on EUR/USD and other European currencies, as could be expected.
Credit: Cash bonds finally saw some signs of relief yesterday with HY tightening 4-5bp and IG 1.5bp. Sentiment was less positive in CDS space where iTraxx Xover widened 1.5bp and Main was unchanged.
Nordic macro
In Sweden today, it is time for the SNDO to announce their new forecast for the central government’s finances and borrowing needs. Throughout 2021, the state finances have turned out stronger than expected by the SNDO, notably outperforming expectations by SEK56bn during only the last three months of the year! This makes it highly likely that they will revise up their view on the budget balance of 2022 and we would not be surprised to see a forecast indicating a budget surplus of SEK130-150bn for the full year of 2022.
We also get unemployment figures for the month of January from Statistics Sweden, however these are unlikely to affect markets.
