Market movers today
It will be a rather busy day on central bank front, kicking off with Norges Bank (NB). It is an interim meeting, hence, we will get only a rate decision, monetary policy assessment (both at 10.00 CET) and a press conference in Norwegian (at 10.30 CET). We will not get revised projections, nor a new rate path. We expect NB to keep rates unchanged, generally deliver little news to markets and reiterate the message from December that rates most likely will be raised in March by 25bp.
The central bank of Turkey also has a meeting today, but it seems the cutting cycle is over for now and consensus expects them to keep the policy rate unchanged at 9%.
ECB minutes from the December meeting will be released at 13.30 CET. There, we look for more details surrounding the upcoming balance sheet normalisation (QT) and how much more ‘significant’ interest rate increases the Governing Council has in mind in light of the inflation outlook. We also have ECB’s Lagarde and Knot speaking at Davos.
In the US, the focus is on housing market data due in the afternoon and on speeches by the Fed’s Collins and Brainard.
The 60 second overview
US: Weak US economic data spurred further speculation in the market that inflation is peaking and global policy makers may be nearing the end of their hiking cycles. US retail sales fell by more than expected (-1.1% m/m) in December, while industrial production declined 0.7% m/m, and PPI for final demand slid m/m by the most since the start of the pandemic. With souring risk sentiment S&P 500 closed down 1.6%, the biggest decline in a month, and 10Y Treasury yields are back at 3.3%, despite comments from Fed officials that stressed more rate hikes are needed.
China: The Chinese economy performed better than expected in Q4 22 and data suggests that Q1 23 could also be stronger than expected, as Covid cases have already peaked in the big cities. We now look for an even more frontloaded recovery starting already in early Q1 rather than late Q1 as the service sector is already showing clear signs of rebounding and companies are likely to raise production in anticipation of better demand in the coming quarters. Read more in China growth update – More frontloaded recovery, 18 January.
Bank of England: UK inflation eased 0.2pp to 10.5% in December, but with core inflation remaining unchanged at 6.3% and wage growth edging even higher (+0.2pp to 6.4% in November), pressure is rising for Bank of England to deliver another 25bp rate hike not only in February, but also in March.
FI: European rates staged another significant rally following Tuesday’s late ECB sources story saying that ECB is pondering its hiking size after the 50bp rate hike in February as well as Bank of Japan’s decision to stay put on a potential widening on the YCC. Weaker than anticipated US data also supported the lower yield move and curves flattened from the long end. Italian bonds continued its recent performance vs. peers, while Bunds briefly touched below the 2% level.
FX: EUR/USD was stable overnight at just below 1.08 after yesterday’s session, where the cross was first pushed higher by ECB comments, then lower by poor risk sentiment. SEK had a strong session, but eventually both SEK and NOK took a hit after equities fell. JPY underperformed as did antipodeans.
Credit: Yet another day with a flood of new issues in the credit market – especially in the financial space. Spanish based clean energy producer Iberdrola SA sold EUR1bn of Green Hybrid notes with a coupon of 4.875%. The order book was EUR 3.2bn at final pricing level – a testament to the strong demand currently in the corporate bond market. Secondary markets were relatively unchanged with ITraxx-Xover 1bp tighter at 410bp while Main was also 1bp tighter at 77bp.