Market movers today
Focus remains on central banks, and not least on the UK outlook following yesterday’s volatility. Several speeches from key central bankers are scheduled for today, including ECB’s Lagarde, Panetta and de Guindos, Fed’s Powell, Evans and Bullard as well as Riksbank’s Ingves.
Consensus expects the National Bank of Hungary to hike rates by 100bp in its meeting this afternoon.
On the economic data front, US August durable goods orders, Conference Board’s consumer conference as well as new home sales volumes will be released.
The 60 second overview
UK: The BoE released a statement stating “as the MPC has made clear, it will make a full assessment at its next scheduled meeting … and act accordingly”, seemingly ruling out a near-term intermeeting hike. To start with, we look for a reaction from the MPC members during the coming week to intervene verbally.
Oil: Oil prices dropped sharply the past week – Brent fell to the lowest level since January. The sell-off owes to a sharp rise in USD, weak risk sentiment and demand concerns amid growing recession risks in US and Europe.
ECB: President Christine Lagarde said ECB would consider reducing its bond portfolio after it completes normalisation of interest rates. The governing council plans to discuss details at a non-monetary policy meeting next week.
Equities: Equities in another roller-coaster ride and once again finishing lower and thereby bringing September 2022 down among the worst on record. Yes, macro numbers were not impressive yesterday but a massive rise in bond yields is not only killing the economy right now it also puts pressure on the current level of equity risk premium. UK is the centre of the chaos with unprecedented moves, yesterday the 2-year yield ticking 50bp higher. In that light one could argue equity markets held up reasonably well yesterday. One could easily be tempted to think of value outperformance under these circumstances. However, that was the case yesterday as growth outperformed value and quality took yet another day with outperformance. Energy, materials and financials all underperforming and hence underscoring how the move in yields does not reflect higher inflation but rather indicating how the insane lift to yields is increasing the likelihood of recession. In US yesterday, Dow -1.1%, S&P 500 -1.0%, Nasdaq -0.6%, Russell 2000 -1.4%. A bit more calmness in yields and FX markets this morning (so far at least) brings back some gains in Asian equities while both European and US futures are higher.
FI: The massive sell-off in UK government bonds continued on Monday with the 2Y UK government bond yield rising some 50bp. This is driven by the soft fiscal policy as introduced last week by the new UK finance minister and the risk of more tightening from Bank of England relative to previously expected. This had a spill-over effect to Europe and Italian government bonds came under further pressure yesterday with a widening of the BTPS-Bund spread on the back of the right-wing election victory at the general election on Sunday given the risk of fiscal easing in Italy.
FX: EUR/GBP briefly rose above 0.92 yesterday as the market assess the effect of tax cuts etc. in the UK. EUR/USD dropped further towards 0.9600 level and USD/JPY rose above 144.
Credit: Credit markets saw further widening on Monday as iTraxx Main was wider by 4bp to 134bp, while Crossover widened 18bp to 655bp. Issuance returned in the Euro corporate segment with Electrolux in the market with a 4Y EUR 500m senior unsecured transaction, while FIG issuance was confined to a single covered bond issue.
