Market movers today
The main focus today will be on the German and Spanish flash inflation data, which will provide the first sense of what to expect from the euro area HICP figures tomorrow. Generally, we forecast gradually easing headline inflation, but see core inflation pressures still remaining at elevated levels. Euro area Economic Sentiment Indicators will also be released for March today.
In the evening, a range of Fed speakers will be on the wires, including Collins, Barkin and Kashkari.
Overnight, the official Chinese PMIs will be released for March. We look for a slight moderation as the initial post-Covid lift to activity has likely eased, but still expect both manufacturing and services indices to signal above-trend pace of growth.
The 60 second overview
Market sentiment: Asian equities are in red, while stock market futures are mixed in Europe and the US. In the absence of any news triggers, markets are tuning in for the Spanish and German inflation prints due this morning.
US banks: The US Federal Deposit Insurance Corp. (FDIC) is facing almost USD 23bn in costs from the failures of Signature and Silicon Valley Banks. Now, according to Bloomberg, the FDIC is contemplating to propose a so-called special assessment to speed up the process of refilling the fund, and the plan entails an outsize contribution by the largest lenders. The impacts on larger banks are expected to go beyond the contributions during the 2009 special assessment where e.g. JPMorgan had USD 675mn extracted from its earnings.
AT1 market: Yesterday, investors warned on FT that the investor treatment in Credit Suisse case could impair banks’ ability to issue AT1 bonds, and lead to a more fragmented market where particularly smaller and weaker banks have to pay a higher risk premium going forward. AT1 bonds are perpetual but typically the issuers refinance the bonds with new issuance once the initial non-call period has expired. More than USD 37bn worth of AT1 debt issued globally has call dates in April alone that is app. 14% of the total AT1 market which is dominated by European banks (80% of the total amount outstanding).
Nordic consumers: Nordic retail sales came out mixed yesterday. In Sweden, consumers are clearly getting squeezed now as rising interest rates eat their disposable income. Retail sales fell 1.2% from previous month in February, and the 9.4% y/y change is the worst print since the time series began in 1992. On the opposite, in Norway, retail sales surprised to the upside maintaining a positive momentum in February (+0.2% m/m), but looking through monthly volatility, the trend is downwards this year.
FI: Yesterday, European yields rose on the back of comments from various ECB officials. ECBs Lane and Kazimir both stated that more rate hikes are needed as soon as the current financial tensions has eased. Hence, the hawks at the ECB are ready to raise rates when the market returns to “normal”. However, the number and pace of the rate hikes is uncertain as Kazimir stated that “the pace of rate hikes may need to slow”.
FX: Yesterday’s FX session was dominated by Scandi weakness and a setback to the JPY, which likely was down to month-end interests. EUR/USD remains close to the 1.0850 level.
Credit: Mirroring the overall positive sentiment yesterday, credit markets continued to see tightening in CDS indices. iTraxx Main closed the day 5.8bp lower at 89.7bp, while iTraxx Xover was 24.5bp lower at 462.1bp. The primary market continued a constructive tone which also benefitted the service provider Securitas to print a EUR600m 4Y bond at final terms of MS+120bp, travelling from IPT of MS+150bp.
Riksbank releases the report Account of Monetary Policy 2022 at 09.30 CET. It will be interesting to see how it justifies the steps taken last year, however, we doubt anything forward-looking will come out of this report.
More market-friendly is perhaps Deputy Governor Bunge speaking 14.40 CET about what could be dome to ensure financial stability together with FSA’s chief economist Henrik Braconier and Lars Heikensten who is the Chairman of the Fiscal Policy Council and former Riksbank Governor.