Market movers today
In the euro area, we get the Sentix investor confidence number for June, which is expected to decline modestly, after the sharp setback seen after the Russian invasion of Ukraine in February.
The World Bank releases its global economic prospects report today, where focus will be on how countries are managing a flurry of external shocks such as higher food and oil prices along with tightening of global financial conditions.
Later this week, the ECB meeting on Thursday is a key focus point along with the US CPI inflation numbers on Friday. Tomorrow the Polish central bank announces its rate decision.
The 60 second overview
Boris Johnson survived a no-confidence vote in his conservative party: The no-confidence vote was called over the so-called “partygate”. While 211 Tory MPs voted for Johnson in the confidence motion, 148 voted against him. Following the results, observers question whether his long-term future of his leadership over the conservative party although he can stay on for now. Boris Johnson refused to call early elections after the results were known, calling for the party to move on and focus on delivery of the policy agenda. The GBP was little changed after the motion.
The Reserve Bank of Australia hiked its cash rate by 50bp to 0.85% this morning, while consensus was expecting a 25bp hike. AUD/USD rose sharply after the rate decision. Both global and domestic factors continue to accelerate inflation, and the very tight labour market conditions are expected to support wage inflation going forward. As local economy is doing well, and inflation pressures continue increasing, RBA is willing to front-load the rate hikes. While the hike was larger than we had expected, we still think relative rates are unlikely to provide much long-lasting support for the AUD/USD. Market is very aggressively priced, seeing the cash rate peaking around 4.5% by May 2023. As we see global growth risks rising towards next year, we think risks are tilted towards a shorter hiking cycle.
Russia and Turkey tentatively agree to resume transporting agricultural products in the Black Sea: Turkey offered Ukraine assistance in clearing the water area of the port of Odessa from mines and escorting ships loaded with grain under the auspices of the UN. But Kyiv fears that Odessa will be unprotected and could become an object of attack. Russian Foreign Minister Sergei Lavrov will hold talks with Turkish officials in Ankara on the plan. Grain prices have been rising sharply after the war in Ukraine broke out, as Russia and Ukraine are some of the most important grain producers. This has threatened food security in especially the developing world.
Equities: Global equities headed higher yesterday despite some risk appetite faded in the US cash session. Cyclicals once again beating defensives and with yesterday outperformance it was the eighth time in the last nine sessions with cyclicals outperforming. Cumulative outperformance almost 5% which fits well with our call of relief rally where the most oversold sectors regain the most. VIX ticked a bit higher yesterday, now back north of 25. Our correction monitor shows a z-score of -0.8, down from -1.6 just three weeks ago and hence also indicating that risk appetite has been increasing within other asset classes as well. Asian markets are mixed this morning, though with most markets lower. Both European and US futures lower as well.
FI: With most of Europe out yesterday, and UK coming back in after Jubilee, it was a rather thin market session. FT’s sources story suggesting that ECB can frontload a year of redemptions of EUR200bn gave some initial support to euro area spreads. On the day, spreads were generally tighter but the tightening seemed rather idiosyncratic. Although Spain was one of the least performers as banks were mandated for a new 10y benchmark bond. Curves steepened from the long end.
FX: It has been a fairly slow start to the week with very limited moves in majors space excl. RUB. The most notable moves have been the setback to CHF and JPY but also the EUR has exhibited some broader based weakness. GBP did little on the Boris Johnson-vote while NOK and CAD have enjoyed support from the recent rise in oil. EUR/SEK still trades just south of the 10.50-mark.
Credit: There was a broad-based positive sentiment in credit markets yesterday where iTraxx Xover tightened to 436.9bp (-9.0bp) and Main to 87.5bp (-1.8bp).