Market movers today
Focus this week will be on Flash PMI’s for euro and US as well as Japanese CPI. We may also see more policy easing from China.
In the Nordics, the Norges Bank meeting on Thursday will take centre stage. We look for a hike of 25bp and signals of another hike in August.
Today is rather quiet with only US NAHB housing index worth noting. Surprisingly, the US housing market has shown tentative signs of bottoming in recent months. We may also get more news on the visit by US Secretary of State Anthony Blinken to Beijing.
The 60 second overview
Markets: It has been fairly quiet overnight with very limited news for markets to trade on. Focus this morning has primarily been on China following US Secretary of State Blinken’s delayed visit to his counterparts in Beijing. Both sides have so far referred to the talks as “candid” marking a seemingly slight improvement of the diplomatic relations between the two super powers.
Also Chinese equities have been in focus this morning with the large Chinese indices trading lower on the back of not least tech- and chipmaker stocks trading heavy following concerns as to a Chinese cyber-security probe. Finally, market expectations for more economic stimulus already tomorrow are building amid the Chinese recovery losing steam.
EUR/USD (temporarily) on the rise. Last week saw EUR/USD complete the largest weekly rise in 2023. The rise was not least boosted by relative monetary policy decisions from the Fed and the ECB. The Fed’s decision to leave monetary policy unchanged was expected, but markets struggled to believe the Fed’s own expectations of two more 25bp rate hikes. We are not convinced either, and we do not expect more hikes from the Fed. In this regard we believe Friday’s release of Michigan inflation expectations supported this call with 1-year expectations dropping sharply to 3.3% in June, from 4.2% in May. For more on our Fed call please see Research US – Fed review: Powell’s hawkish bluff, 14 June.
In addition EUR/USD found support last week from the ECB hiking policy rates by 25bp whilst delivering fairly firm guidance towards more tightening in the future on the back of an upward revision to inflation projections by the staff. In contrast to our Fed expectations, we expect two more 25bp hikes from the ECB. Read more in Flash: ECB Review – ‘Very likely’ to hike again in July, 15 June.
Looking ahead we highlight that EUR/USD is driven by more than relative rates and after last week’s rise we expect a move lower in the cross.
Equities took a breather on Friday after another strong week. S&P logged its fifth straight week of gains (2.6% in a week!), something that has not happened since November 2021. Friday sector performance was tightly bunched with rotation into defensives (utilities, materials, consumer staples) and out of growth cyclicals (tech, communications). Europe fared better with Stoxx 600 up 0.4% while S&P500 down as much. US is closed for holiday today.
FI: US 10Y government bond yields ends the week more or less unchanged despite the fairly hawkish comments from the Federal Reserve at the FOMC meeting, while 2Y yields rose 10bp during the week. Hence, the curve flattening of the US curve continued as both the 2-10Y and 10-30Y segments continued to flatten.
We see the same picture for the European yield curves where the curves also continue to flatten from the front end and the slope of both the 2-10Y and 10-30Y German curves flatten as ECB promised more rate hikes.
FX: EUR/USD experienced substantial gains last week, reaching a multi-week high and consolidated around the 1.0950 mark. EUR/GBP moved lower during Friday’s session, currently trading at levels last seen September 2022. For UK markets, focus this week turns to CPI out Wednesday and Bank of England meeting Thursday. This week, the big event for NOK FX is the Norges Bank monetary policy meeting on Thursday, where we expect a 25bp hike.
Credit: Credit markets had a slightly positive day on Friday reflecting positive developments in equity markets. Overall iTraxx Main was 1bp tighter at 76bp while iTraxx Xover was 9bp tighter at 397bp.
