Market movers today
The most important data release of the day will be the US May Jobs Report. While the ADP report released yesterday was weaker than expected, most indicators still point towards labour demand remaining at high levels. In addition, ISM Services PMI will be released in the afternoon.
On US monetary policy, Fed’s Brainard speaks this evening.
The 60 second overview
New forecast for the global economy: This morning we published our new take on the global economy: Big Picture – A (mild) recession in western economies seems unavoidable, 3 June, looking at the economic prospects for the US, Chinese, euro area, UK, Japanese and emerging market economies as well as a special section on the challenges in achieving the EU green transition. Despite the high inflation eroding consumer purchasing power, economic activity will near term be supported by pent-up demand for services and significant savings. However, as the swift monetary policy tightening in western countries, notably in the US, lead to increasingly tighter financial conditions, we expect first the US economy to fall into a mild recession in Q2 next year, spilling over to the other western economies afterwards. The setback will be somewhat mitigated by solid growth in the Chinese economy supported by policy stimulus.
Increase in OPEC production fails to hold down oil prices: OPEC yesterday came about half way in meeting the market expectations. The cartel agreed to increase output more than previously planned, but did not decide on Russia’s status in OPEC+ following the EU embargo announced earlier in the week. Consequently, oil prices erased part of the decline since Tuesday. On the one hand, more output from OPEC (even if the group is struggling to live up to previous pledges) will ease tight market conditions near-term. On the other hand, less spare capacity within OPEC and particularly Saudi Arabia leaves the oil market vulnerable to future supply shocks. We stick to our forecast that Brent should average USD115/bbl short-term and drop below USD100/bbl next year.
Equities: The US equity markets rose yesterday, despite higher oil prices and hawkish signals from Fed members. This morning performance in Asian markets is mixed, while US and European futures point to a higher opening.
FI: With UK out celebrating Jubilee yesterday and today, the European markets were trading mostly sideways with less volatility than what we have seen in the past couple of weeks until the afternoon. However, as US opening and Fed’s Brainard saying it’s too soon to say if inflation has peaked, combined with surging oil prices (following OPEC only half-way meeting expectations), resulted in intensified concerns about the current inflation pressure and sent rates sharply higher.
FX: OPEC yesterday came about half way in meeting the market expectations. Swiss inflation surprised significantly to the upside with CPI for May reaching 2.9%. DKK-EUR liquidity is set to be turned upside down in the second half of June. EUR/NOK has moved back below the 10.10 mark.
Credit: Yesterday, CDS indices were closed due to UK holiday hence levels are unchanged with iTraxx Main 1.8bp at 89.3bp and Xover at 446bp. Cash bonds performed stable during a quiet session.
Nordic macro
Norwegian unemployment has continued to fall so far this year, which is a good indication that growth is still stronger than normal and capacity utilisation is still rising. With labour shortages hitting record highs, how much further unemployment can come down will depend on the size of matching problems in the labour market. We expect the (seasonally adjusted) jobless rate to drop to 1.8% in May, which would be below Norges Bank’s projection of 2.0% in the March monetary policy report.
