Market movers today
In the US, we get crude oil inventories, where the change may signal how big the demand-supply imbalances are and how much of the inventories is being fed to the market amid rising oil prices.
Poland’s central bank is expected to raise its policy rate by 75bp to 6% as the country struggles with inflation around 14%.
Overnight, Chinese trade data for May will give some indication about the strength of domestic demand (through imports) as well as global demand (through exports). The trade balance surplus is expected to increase as export growth is expected to be quite high amid resilient private consumption in Western economies while imports should grow less given the lockdowns in China.
The 60 second overview
JPY weakness resumes: As US interest rates have recently ticked higher amid a similar rise in oil prices, the energy importer Japan has seen renewed weakness in the JPY against the USD and peers. As USD/JPY has moved through 133 new (weaker JPY) from 127 about two weeks ago, the amount of market reports on the weakness of JPY has increased. Also, this move is at odds with a part of the market that has argued for a stronger JPY and a peak in the rise of global interest rates. Indeed, the monetary policy of holding their ground amid everyone else moving to hike is causing JPY to weaken. In macro, this is likely to add upwards pressure on inflation as import prices rise further. However, FX weakness also erodes the consumer purchasing power while boosting overseas profits and there will thus be some balancing between a potentially off-setting growth effect and upwards pressure on CPI. We expect no relieve from the Bank of Japan, which continues to view a weak JPY as mainly positive for the economy (and their inflation mandate).
Equities rally: Equities were higher yesterday as US markets turned around and ended very close to day-high. The energy sector stood out as the best performer driven by oil price ticking higher. The volatility index VIX yesterday took another step lower to just north of 24. A move lower in vol and implied vol opens up for more risk taking in funds risk budgets based on vol measures and hence lower vol is often associated with higher equities. The positive sentiment has carried over to Asia this morning where most markets are in green led by the Hang Seng index up almost 2%. Futures in Europe catching up while US futures are slightly lower.
FI: Yesterday, global bond yields declined with 10Y Treasuries back trading below 3% ahead of the ECB meeting on Thursday and US CPI data on Friday. European yields also declined and the spread between the periphery and core-EU tightened although the 10Y BTPS-Bund spread is still above 200bp.
FX: So far, it has been a quiet start to the week in FX markets where the most notable moves have been a continued set-back to JPY while the USD has gained modest ground in trade weighted terms. EUR/NOK rallied during the European session yesterday but came sharply lower during US hours erasing most of the rise. EUR/SEK is little changed.
Credit: Credit markets were soft yesterday where both the high- and low-beta segments were under pressure. Hence, iTraxx Xover widened almost 10bp and Main 1.5bp.
