Market movers today
Today’s key economic release is the IFO survey of the business climate in August. After the relative weak preliminary PMI release on Tuesday, the IFO survey will probably also show a decline in confidence among German companies both regarding the current situation but also expectations to the future amid the headwinds from the energy crisis in Germany and high inflation.
We also get the details for the German second quarter GDP, which showed zero growth in the preliminary release.
In the US, the Jackson Hole Economic Policy Symposium 2022 begins today. The detailed programme will be released today, but we already know that Fed Chair Jerome Powell speaks tomorrow at 16.00 CET. US yields have been climbing higher in recent days suggesting financial markets expect Powell to come with a hawkish message.
The 60 second overview
China steps up stimulus of the economy: Overnight China outlined a further 1 trillion yuan (equivalent to USD146bn) in stimulus to support the Chinese economy which is hit by both property market problems, repeated COVID lockdowns and waning global demand. The stimulus package targets mainly new infrastructure spending through state-owned bank and local government lending. Asian equity and FX markets reacted mostly positively to the news.
Equities: Small moves in equities yesterday as investors await the Fed response at Jackson Hole. Sector performance was scattered, with an odd combination of real estate, communication services and financials among the top groups. S&P500 0.3%, Dow 0.2%, Nasdaq 0.4% and Russell 2000 outperforming, 0.8%. This takes S&P500 close to its 125-day moving average, where equities have not managed to stay more than a few days so far this year. Interestingly, most positioning indicators have risen over summer but this is not the case for trading volume that has continued lower. Hence, equities may very well continue its volatility and this is also what VIX is showing at 24.
FI: Global bond yields continue to rise ahead of the Jackson Hole conference as markets are expecting more hawkish comments from central banks as they prepare the market for more front-loading of rate hikes in order to bring down inflation. The tightening of monetary policy comes despite the risk of a recession especially in Europe. The pricing of ECB has shifted significantly during the past two weeks as we are now pricing some 200bp for 2022 and 2023 relative to 130bp two weeks ago.
FX: All in all yesterday was a fairly quiet session for FX markets. While the EUR spiked late in the session EUR/USD still failed to break above parity. HUF, MXN and NOK lead gains in majors space while NZD, AUD and GBP posted modest losses.
Credit: Credit markets were marginally positive yesterday with iTraxx main going 1.2bp tighter to 109.5bp while Xover tightened by 6.6bp to 542.7bp. Absolute spread levels continue to be wide though, reflecting the perceived risk of a stagflationary environment in the coming quarters. Even so, the primary markets seems to be open and we continue to see new deals being announced in both EUR and Nordic currencies.
Yesterday, Martin Flodén broke the Riksbank’s currency silence as the Riksbank is concerned that further weakness of the Swedish Krona could lead to additional inflation pressures. While it is interesting that the krona pops up on the agenda, comments like ‘a stronger krona wouldn’t hurt’ (obviously it wouldn’t!) and ‘krona is way too weak’ (normally 2% deviation from the KIX path would be described as noise!) are empty and of less significance to markets as long as they are not backed by further policy action or commitment.