Market movers today
A quiet start to the week, with consumer confidence for the euro area and Denmark the only releases of interest. Although consumer confidence rose for a second consecutive month in December, it remains extremely low from a historical perspective and is at odds with the relative resilience in consumer spending seen in actual hard data so far.
Later this week, markets will focus on the PMIs for January (Tuesday) and US GDP figures (Thursday), while the earnings season continues.
The 60 second overview
US debt ceiling: Last week the US government hit its statutory debt limit at USD 31.4 trillion, and the treasury is now utilizing the so-called ‘extraordinary measures’ (for example delaying payments to government workers’ pension funds) to avoid a default. The measures are expected to last only until around June, however. Over the weekend a bi-partisan congress group suggested changing the debt ceiling from a fixed dollar amount to a percentage of economic output, which would reduce the risk of the government hitting the ceiling while still limiting growth in national debt. That said, the details of the proposal are not yet known, and a near-term solution appears elusive as some Republican lawmakers in the House of Representatives have pushed for steep spending cuts in return of supporting the debt ceiling raise.
Market sentiment: Risk sentiment recovered late last Friday, and the positive tone continued in Japan this morning, as markets digest the mixed economic signals. Last week’s December US retail sales and industrial production data pointed towards a clear slowdown in activity but consensus is looking for an uptick especially in the euro area leading indicators, when the January PMIs are released tomorrow. Markets are already looking ahead towards the next round of central bank meetings next week, although both the ECB and the Fed are well priced for 50bp and 25bp hikes, respectively.
FI: European yields ended last week higher after ECB’s Lagarde as well as other ECB officials stated that that it was much too premature to speculate in a slowdown of the rate hikes and that 50bp at the next two meetings was still in place.
FX: Last week was generally characterised by a stabilisation in the asset price moves that had otherwise characterised the beginning of the year. The rally in risk and FI levelled off and the move higher in EUR/USD slowed. In FX spot markets GBP notably had a strong week driven by both domestic data releases and defensive stocks outperforming cyclicals. EUR/GBP is consequently close to the lowest levels since December. While EUR/NOK remains in the 10.70s last week’s SEK rally has brought EUR/SEK back below the 11.20 mark. EUR/USD remains below the 1.09 mark.
Credit: According to data from EPFR Global European domiciled high-yield funds recorded their biggest weekly fund inflow in 41 weeks last week as investor appetite for credit risk returned. This bodes well for continued high primary bond activity in the coming weeks. Friday, credit markets saw only small changes with ITraxx-Xover 1bp wider at 429bp while Main was unchanged at 81.
