Market movers today
Focus today turns to Fed Chairman Jerome Powell’s semi-annual testimony at 16.00 CET in the House Financial Services Committee.
This morning at 8.00 CET we have UK CPI for May. Consensus is for unchanged core CPI after it jumped to a new cycle high to 6.8% in April from 6.2% in March.
In the Nordics, we have Swedish unemployment out at 8.00 CET while awaiting the Norges Bank meeting tomorrow.
The 60 second overview
Markets: European equity markets broadly declined yesterday as market sentiment remains cautious so far this week. Especially concerns about the health of China’s economy seems to weigh on risk appetite. Also in the US, equity markets ended the session lower after the Juneteenth holiday, as all three major indexes fell. This morning, risk-off has continued with Asian markets broadly in red, driven by retreating Chinese tech shares. Futures point to a slight positive open in Europe and a flat US open. Elsewhere, the USD strengthened against most G10 currencies, while EUR/SEK broke through 11.80 for the first time ever and posted a fresh all-time-high. US yields declined moderately across the curve, especially in the long end with 10Y Treasury shedding 3-4bp.
Fed Chairman Powell testimony: The congressional testimony offers Powell a chance to give more guidance on policy in a follow-up to the Fed meeting last week. However, given the short time span between the two events we doubt he will give many new clues. The Fed is data dependent and has a meeting-by-meeting approach so their next decision on 26 July is likely to not least hinge on the next CPI release (12 July) as well as employment report (7 July). Our call is that the Fed is done raising rates.
Equities: Equities were slightly lower on Tuesday. However alike Monday, it was not a clear risk-off session. There was no distinction between cyclicals and defensives, but health care and consumer discretionary faired the best while energy, real estate and utilities plummeted 2-3%. Also, VIX was roughly unchanged at the ultra-low level of 14. Both the US and Europe were down about -0.5%. Futures are unchanged to a tad higher today.
FI: Long yields drifted lower through yesterday’s trading session as a reversal of Tuesday’s sell-off. Both core countries and peripherals saw the 10y point declining by about 10bp. However, the front end of the curve saw relatively smaller changes throughout the day. As a result, the 2s10s German bond spread reached a new low of -71bp, marking the most inverted curve since 1992. Spreads between Italy and Germany continued widening moderately but still trade close to the tightest levels since the start of the year. In the US, similar to Europe, curve inversion was the theme of the day with rates declining markedly across tenors.
FX: EUR/SEK reached new all-time highs yesterday, briefly break through the 11.80 mark on shaky risk sentiment. In line with SEK, EUR/NOK likewise moved higher throughout yesterday’s session. EUR/USD continues this week’s moderate decline, hovering around the 1.09 mark. Today, the big market mover for GBP is the May inflation numbers out this morning, the final Tier 1 data release prior to the Bank of England meeting Thursday.
Credit: Credit Markets were relatively stable on Tuesday even as the recent rally in equities began to lose steam. Itrax main widened 0.2bp to close at 76.2bp and Itrax Xover widened 2.2bp to close at 401.3bp. Primary markets were once again fairly active ahead of the summer lull.
Sweden: Ahead of today’s LFS labour market statistics, we have observed continued resilience from, e.g., the PES data which showed that the unemployment rate dropped further in May. LFS data should go in the same direction. The SCB survey will also provide information regarding the employment rate, labour force and hours worked, where the latter is often an early indicator of were the labour market is heading.