Market movers today
After the shift in risk sentiment yesterday as markets digested the Fed message, the US jobs report will be in focus today. We expect the job market continued to tighten in April, with an increase in nonfarm payrolls of around 400k and possibly a further drop in the unemployment rate to 3.5%. This should keep the pressure high on Fed to hike rates in the coming months and comments from Fed’s Bullard and Waller speaking today will be scrutinized for any hints in that respect.
German industrial figures for March will likely make for a gloomy reading today, after the weak factory orders released yesterday. Waning foreign demand and supply bottlenecks have again started to weigh on German industry after the tentative rebound at the start of the year.
Riksbank releases the April 28 monetary policy minutes and markets will look for how Board members were leaning in relation to the repo rate path.
The 60 second overview
Risk sentiment: The Wednesday’s FOMC-driven rally reversed course yesterday, as equities sold off broadly, yields rose and EUR/USD fell back near 1.05. In equities, the decline was led by growth sectors and Nasdaq had its worst day since June 2020, falling by almost 5%. Despite Powell’s message of Fed only considering 50bp hikes in the coming meetings, markets are now back to pricing almost an 80% probability of a 75bp hike for the June meeting. We continue to expect 50bp hikes in the coming two meetings, but see risks clearly tilted towards even more aggressive tightening. In today’s US jobs report, more signs of labour shortages or persistently high wage inflation could further support the rate hike speculation.
Other central banks: Yesterday’s central bank meetings provided a mix of dovish and hawkish signals. Bank of England hiked rates by 25bp as expected, still signalling high inflation pressures but also highlighting clear downside risks for growth. BoE maintained its softer forward guidance from the March meeting leading to EUR/GBP rising above 0.85, but we continue to see risks tilted towards more, rather than less rate hikes. See more in Bank of England Update Review: Another rate hike but mixed signals, 5 May. As usual, Norges Bank provided little new signals from its interim meeting, policy rate will likely be hiked again in June. Among CEE central banks, the Czech National Bank hiked rates by 75bp, compared to 50bp expected by markets and consensus. In contrast, the National Bank of Poland fell short of expectations, hiking only by 75bp vs. 130bp priced in before meeting.
Equities: And just like that, US equities plunged by 4-5%. Equities came under significant pressure just at the opening bell, reversing the post-FOMC rally. All sectors were notably lower, but growth names were the standouts with tech, cars and semis slaughtered. Cyclicals underperformed defensives massively, as energy, consumer staples and utilities held up very well. Dow -3.1%, S&P500 -3.6% (still up for the week though!), Nasdaq -5.0% and Russell 2000 -4.4%. US futures are directionless this morning.
FI: A significant sell-off led by the US dominated the European market and lead to a bearish steepener. While the initial reaction to the FOMC decision on Wednesday was a dovish hike, risk sentiment changed markedly yesterday. US Treasuries ended 8bp higher on the day, after being almost 13bp higher during the session. Bunds rose 7bp to above the 1% mark. Spreads in core and semi-core tightened marginally, and widened in the periphery as the BTPs-Bund spread continues to flirt with the 200bp mark.
FX: Oil prices bounced around yesterday where another uneventful OPEC meeting. EUR/GBP rose on dovish BoE. The Powell-induced rally in risk-disposed currencies like the SEK proved short-lived.
Credit: Though credit markets opened sharply tighter following the FOMC meeting, sentiment quickly turned and credit took another leg significantly wider, with iTraxx Xover widening 19bp and Main 3bp.
Nordic macro
Sweden: In Sweden all eyes are on the Risksbank minutes. We will look into the reasoning of each of the six governors with regards to the uniform u-turn they provided (no dissenters) in the April meeting. Also, governor Skingsley gives a speech with the title: High inflation and a rising repo rate – what happens to the Riksbank’s balance sheet? at noon (12 CET).
Also a variety of macro data for March is released including house price statistics from Svensk Mäklarstatistik, and central government payments for April. As we had a negative (-0,4% QoQ) BNP indicator for the first quarter in Sweden, today’s data should give some more clarity on the composition of the slowdown.
