Market movers today
Today’s main data release will be the April flash HICP print for the euro area. Individual country data released last week points to an uptick in headline inflation and lower core inflation, but in any case, underlying price pressures remain too high for the ECB to stop hiking.
Markets will most definitely also pay attention to the euro area Q1 bank lending survey and loan growth data for March, and it will be interesting to see to what extent banking sector turmoil has affected credit conditions. While our base case is for the ECB to hike by 50bp on Thursday, a much steeper than expected tightening in credit conditions could tip the scale in favour of the doves.
We also get Swedish PMIs, see below.
In Denmark, we get the FX reserve figures for April, see below.
The 60 second overview
US debt ceiling: On Monday evening, US Treasury’s Yellen warned that the treasury now estimates it will most likely be ‘unable to meet’ all payment obligations in early June, and potentially as early as June 1 due to the debt ceiling. Shortly following Yellen’s statement, The Congressional Budget Office (CBO) noted that is sees ‘significantly greater risk’ of treasury running out of funds in early June. Previously, the CBO had estimated that the most likely window for the so-called ‘x-date’ was in July-September, but as we flagged in Research US – X-date looms closer as ‘Tax Day’ disappoints, 20 April, lower-than-expected tax revenues have increased the risk of an earlier default. We still see an eventual lift to the debt ceiling as a clear base case and expect the Fed to deliver a final 25bp hike tomorrow, but the official statements could further increase the stress in the markets, which has been the most evident in the US 5y CDS rising to the highest level since 2008.
US manufacturing: ISM manufacturing increased and came in better than expected at 47.1. Despite the improvement, April marks the sixth straight month below 50. It also highlights the murky picture we have of the manufacturing sector currently, though, due to the discrepancy to the S&P PMIs, which ticked in above 50 in April.
Banking turmoil: JPMorgan Chase & Co will buy most of First Republic Bank’s assets after regulators seized it at the weekend. JPMorgan will pay $10.6 billion to the U.S. Federal Deposit Insurance Corp for most of the assets. The failure is the largest since Washington Mutual in 2008. It gave the market some relief and lifted US treasury yields, as the chance of another Fed hike increases.
Equities: Global equities, or just US markets marginally lower yesterday. Most of Europe closed for May Day, and while the Danish stock market has been growing relative to rest of Europe for the last two decades it is still a relatively small market. Danish stocks broadly higher yesterday with banks leading the gains as investors gain more confidence in the earnings reports from last week. In US a very mixed performance where Energy stood out as the worst performing sector with oil price declining. US performance yesterday, Dow -0.1%, S&P 500 -0.04%, Nasdaq -0.1% and Russell 2000 +0.01%. Asian markets are mostly higher this morning (mainland China still closed). US futures close to unchanged while European futures are higher in the ballpark of 0.2%.
FI: The handling of First Republic Bank and the stronger than anticipated ISM figures out of the US resulted in a sharp rise in US yields yesterday. 10y UST rose 10bp to 3.56% yesterday. European markets were closed. Last night Yellen said that debt-limit measures may be exhausted by 1 June.
FX: Yesterday’s FX session was characterised by a rebounding USD returning EUR/USD slightly below the 1.10 mark. The cyclically sensitive currencies like NOK and SEK weakened somewhat while the JPY suffered from a rise in US yields bringing USD/JPY closer to the March peak of 137.9. EUR/GBP remains just south of the 0.88 mark.
Credit: CDS markets were closed on Monday.
In Sweden we get PMI manufacturing numbers for April (March 45.7) and it will be interesting to see if Sweden follows Germany into even deeper contractionary territory.
We get Danish FX reserve figures for April. Given the weaker DKK, we do not expect the central bank intervened in FX markets in April, just as it did not intervene in the preceding two months.