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FOMC Minutes Tonight and Several ECB SpeakersToday

Market movers today

FOMC minutes from the March meeting will be released in the evening, and focus will be on any hints about the upcoming QT, more so than rate hikes. Fed’s Brainard said yesterday that she expects balance sheet reduction ‘at a rapid pace’ starting in May.

The National Bank of Poland (NBP) will have a monetary policy meeting, where consensus is looking for a 50bp hike, while markets are pricing in 75bp. There will also be several ECB speakers on the wires throughout the day, including de Guindos, Schnabel and Lane.

Negotiations also continue on the new EU sanctions on Russia, EU yesterday proposed a ban on Russian coal imports and European Commission president Ursula von der Leyen hinted the group is working on an oil import ban as well.

The 60 second overview

Ukraine-Russia: Yesterday we got one of the first indicators of the impact on the Russian economy as the service PMI for March falls to 38.1 from 52.1 in February. The decline in business activity and new orders (both domestic and foreign) explains the setback as firms also cut back on staffing amid weak demand. At the same time, inflation pressures quicken due to higher supplier prices and adverse exchange developments. The composite indicator is now at 37.7 compared with 50 in February and is a signal of a recession of about 3-4%. Looking ahead, further decline in the indices can be anticipated as western supplies are further curtailed over time plus new sanctions being considered, suggesting that the worst has not been seen yet.

Yesterday EU announced that they are set to stop buying Russian coal in the next leg of sanctions, and only ending oil and gas at a later stage (no date horizon set).

Euro area: The euro area final PMI figures released yesterday held up better than anticipated at 54.9 (composite, vs. 54.5 expected) as services PMIs have been supported by the reopening of the economies. However confidence indicators which are a good predictor of PMIs ahead provide a dour expectation. Also in Europe, one of the bigger German wage negotiations this year in the chemical industry has been postponed until October, with the partners agreeing on a one-off payment of EUR 1400 for now. In light of the very high uncertainty, we might see similar trends in other negotiations, but it is a first sign that for unions, job security might matter more than real income growth right now.

EU: EU triggered the ‘rule-of-law’ clause on Hungary yesterday. This would open up for Hungary not receiving EU funds, including the NGEU funds, where they are otherwise set to receive around EUR40bn.

Equities: Equities were mostly reverting lower on Tuesday. The yield curve steepened, taking growth to an underperformance of value (after beating the tape the last few days). Value outperformed growth by more than 100bp and defensives beat cyclicals. Dow -0.8%, S&P500 -1.3%, Nasdaq -2.3% and Russell 2000 -2.4%.

FI: After the EGB rally on Monday, we saw a significant sell-off yesterday, with massive spread widening. 10y Bunds sold off 11bp while the BTPs-Bund spread still widened 8bp. This came on the back of multiple reasons. PEPP ending not to support the significant supply yesterday from Germany, EU and Austria, better than expected PMIs, and potential of new sanctions ultimately leading to speculation of higher consumer prices. That also means that the continued bid for linkers has continued in general very volatile inflation markets. All of this supports the reason for accelerated tightening from ECB. Currently there are 63bp priced in by year end (€STR). France led the underperformance in the semi-core space as market focus has turned to the first round elections this Friday.

FX: Summary. The time could be now for new lows in EUR/USD. SEK rallied to yesterday.

Credit: Credit markets were in risk-off mode on Tuesday, following some of Europe’s major equity indicies. Itraxx main widened 2.6bp to close at 73.1bp, while Xover was 13bp wider, closing the day at 345.2bp. Despite the soft-ish sentiment, primary markets were alive and kicking, with the European Union offering a jumbo sized EUR6bn 20YR green bond. The more than 13x oversubscription indicated healthy investor appetite for the deal, which ended up having a re-offer spread of only +9bp (to mid swaps).

Danske Bank
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