Market movers today
Today, markets will look closely at flash euro area HICP figures. The country figures released on Wednesday and Thursday were on balance a bit higher than consensus, driven by Spain and Germany. Even so, headline inflation is falling and thus consumer headwinds are waning. We have seen early signs of momentum in core prices declining in Q2, and gauging the underlying price pressure will be key for markets. The country releases so far would point to a 5.7% headline print.
At the same time, the euro area unemployment rate is released. It was the lowest on record in April at 6.5% and we do not expect to see any weakening signals here
In the US, we get PCE data for May.
n Norway, we get unemployment figures and in Sweden we get wage data, see more in the Nordic section below.
The 60 second overview
China: Overnight, the official NBS PMIs continued to signal sluggish growth in June, with manufacturing PMI ticking up slightly to 49.0 (from 48.8) and non-manufacturing declining to 53.2 (from 54.5), driven by both construction (55.7; from 58.2) and services (52.8; from 53.8). The latter has already fallen below its pre-Covid average (53.2), suggesting that the boost from reopening has stalled faster than expected. We recently revised down our forecast for Chinese GDP growth to 5.8% in 2023 and 4.8% in 2024.
Japan: Tokyo Core CPI, which is often considered to lead nationwide developments, remained stable above Bank of Japan’s target at 3.2% (consensus 3.3%) in June. We think the gradually rising underlying price pressures will push BoJ to eventually loosen the grip on the yield curve control, either at the next meeting on 28 July, or in September. BoJ’s deputy governor Himino commented yesterday that he is seeing signs of demand-driven inflation picking up, although still not commenting on the outlook for making policy changes. JPY was little changed overnight.
US: The US Q1 GDP growth was revised up surprisingly sharply yesterday, from 1.3% q/q AR to 2.0%, reflecting stronger private consumption (+4.2% q/q AR). The release was accompanied by initial jobless claims falling against expectations (to 239k), which led to markets increasing bets on upcoming Fed hikes. The peak Fed Funds Rate is now priced at 34bp above the current level by November, implying around 40% probability of two more rate hikes. Atlanta Fed’s Bostic appeared more dovish, saying that he expects inflation to cool without the need for further rate hikes. That said, he also added that he does not expect policy rate cuts even in 2024.
Riksbank: The Riksbank hiked by 25bp and increased QT volumes, in line with our expectations. The updated rate path was to the hawkish side, as it guides towards an additional 30bp worth of hikes during autumn (we keep 25bp in September and a peak at 4.0%). In a separate, but synchronized press release the Riksbank announced that they are considering to start hedging part of the FX reserves. While the news sparked speculations if this was a currency intervention (in disguise), the press release made clear and it was later confirmed by Thedéen that this is about ‘sound’ risk management, it is not a currency intervention and it does not have a monetary policy purpose. As a result, the knee-jerk drop in EUR/SEK was reversed and net-net the impact from the Riksbank was muted. Read more in our Flash comment Riksbank – 25bp hike and more QT, 29 June.
Equities: Global equities were higher yesterday with lift from the cyclical sectors and banks standing out as the big winners. As mentioned yesterday, stress tests are giving some relief to banks, but a further lift came from strong macro data (better demand and better job data) pushing up the long end of the yield curve. Despite banks sticking out yesterday it was yet another day when the bearish investor consensus had to acknowledge that recession is not imminent and a soft landing seems more plausible. Hence, the pain trade higher in equities continued; and being underweight equities and cyclicals in H1 has been a very costly strategy. In US yesterday Dow +0.8%, S&P 500 +0.5%, Nasdaq 0.00% and Russell 2000 +1.2%. Asian markets are mixed again this morning. However, China is for a change leading the advance while Japan is lower. Chinese NBS PMIs were in no way impressive but apparently solid enough to satisfy investors. Futures in Europe and US are marginally higher.
FI: Global yields rose across the board initiated by the surge in German and Spanish inflation data, which was later followed by strong US data released at 14:30 CET. Jobless claims fell over the past week, and Q1 GDP was clearly revised higher where stronger private consumption is part of the driver. The sell-off was recorded primarily in the sub10y point with 10bp higher 10y German yield to stand at 2.41%. Wednesday’s settlement of the TLTRO left excess liquidity EUR 493bn lower to EUR 3.6trn, however this did not leave a mark on the €STR fixings that continue to fix 10bp below the deposit rate. Markets still price a 4% peak in ECB policy rate.
FX: USD rallied together with AUD and CAD yesterday. The former aided by stronger-than-expected US key figures. SEK and EUR lost. The former was largely unaffected by the 25bp rate hike by the Riksbank.
Credit: Yesterday CDS indices grinded tighter for another day with iTraxx Main closing at 76bp (-1bp) and Xover at 411bp (-5bp). Primary issuance was rather limited but did see the French banking group BPCE place a five-year EUR500m senior preferred in social format. The social format was likely a factor that helped boost demand with books reported at EUR2.3bn despite a modest concession for the deal.
Nordic macro
Norway: The Norwegian labour market remains tight but is showing some signs of weakening. New job openings are down, and the number of jobless has begun to edge up. Short-term unemployment too has begun to climb, which is often a harbinger of rising unemployment further ahead. We expect this trend to have continued in June, but with the seasonally adjusted jobless rate still unchanged at 1.8%.
