Wed, Mar 29, 2023 @ 15:47 GMT
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Financial Conditions Tighten Again

Market movers today

It will be a quiet day on the data front but we do get the euro area final CPI figures for January, including details for different components. In the US, it is time for the second release for the Q4 GDP.

The central bank of Turkey (CBRT) is expected to cut rates by 100bp to 8.0% today. Under political pressure, the CBRT has been one of the few central banks globally that has kept their dovish bias. They have been on hold since November but now they are expected to resort to cuts again as a part of the government’s response on the devastating earthquakes a few weeks back which affected provinces that account for app. 10% of the nation’s output.

ECB’s de Cos and FOMC members Bostic and Daly are scheduled to speak today.

The 60 second overview

Pricing in ‘higher for longer’ still remains the name of the game. Compared to a month ago, markets are currently pricing in a 50bp higher peak rate for the Fed and 30bp higher peak for the ECB. Same time, markets have basically priced out any expectations of rate cuts for later this year. As often, volatility in rates and bond markets has coincided with a negative sentiment in the stock market while in FX markets USD has again gained traction.

FOMC minutes: The February FOMC minutes came out slightly on the hawkish side. While most of the discussion on economic developments was outdated in light of the recent upbeat data, the minutes revealed that ‘a few’ participants had favoured a larger 50bp hike. Furthermore, all participants expected further rate hikes in coming meetings, despite the fact that markets had speculated on a pause in March prior to the meeting. Some participants also noted that the pre-meeting easing in financial conditions could warrant a tighter monetary policy stance, even though Powell has downplayed the risk in the past. Markets responded by pricing in a slightly higher probability of a 50bp hike in March, and EUR/USD touched below 1.06 for the first time since early January. That said, we still look for a 25bp hike in the Fed’s March meeting, and see a longer hiking cycle (into summer) as more likely than a return back to larger hikes.

Bank of Korea kept its policy rate unchanged at 3.5% this morning as widely expected but left the door open for further hikes. The Korean economy declined in Q4 last year and house prices are falling rapidly.

FI: The minutes from the FOMC meeting showed that the Federal Reserve is likely to raise rates until they are confident that inflation “was a sustained downward path to 2%”. The minutes also showed that they prefer to move in steps of 25bp rather than 50bp although a few members would prefer 50bp. The reaction in the US bond and rates markets was limited despite the hawkish “twist”.

FX: In a relatively quiet session yesterday primarily the late USD move higher set the scene with EUR/USD falling to 1.06. AUD, SEK and GBP had a fairly weak session yesterday although losses were contained vs EUR. EUR/SEK has bounced slightly off the 11.00-threshold while EUR/NOK keeps trading south of the same level leaving NOK/SEK just north of parity.

Credit: Following the widening on Tuesday, CDS indices held broadly stable yesterday with iTraxx Main ending the day at 81bp (-1bp) and Xover at 419bp (-6bp). In the primary market Danish utility company Ørsted took centre stage by launching an EUR deal with a total volume of EUR2bn split on three green tranches. Demand was decent with combined books closing at over EUR5.2bn. Other than that no issuance took place in the EUR corporate market.

Nordic macro

The Swedish Debt Office will release its new borrowing forecast at 09.30 CET followed by a press conference at 10.00 CET. We believe that the total borrowing requirement will be relatively unchanged for 2023 at this point given the surplus carried over from 2022, but if anything we see upside risks for 2023. We would find it reasonable for the Debt Office to shift from T-bills to SGBs in its borrowing plan, but it is possible this will have to wait until the May update.

Riksbank Deputy Governor Martin Flodén will hold a lunch talk on the economic situation and current monetary policy at 12.00 CET. This will not be published on the website but look out for potential flashes.

Danske Bank
Danske Bank
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