Market movers today
We head towards weekend with an almost empty data calendar.
We get Q2 GDP data from Norway in the morning.
Also, euro area final HICP for July will be released, including detailed data on different components.
The 60 second overview
EUR/USD is still range bound around the 1.09 mark as has been the case for most of this week. Yesterday was a rather quiet session, and global risk sentiment continues to be the main driver of the cross, together with the rise in especially long US yields – probably driven by a confluence of factors like a large supply of Treasuries, better-than-expected economic data, US credit rating downgrade and BoJ’s relaxation of the YCC. The weekly jobless claims were more or less in line with expectations at 239k, while the Philadelphia Fed index, as opposed to the Empire manufacturing index earlier this week, surprised significantly to the upside at 12.0 (consensus: -10.4, prior: -13.5). We likely have to wait until next week’s PMI data to get firm indications on how growth momentum has developed in August. There are no significant events on the calendar today – global risk sentiment looks to be the ongoing driving force of the cross for the time being. We still think the mix of US outperformance, rising US yields and declining equities seem to be a good cocktail for further USD appreciation.
Norway: As expected, Norges Bank raised the policy rate by 25 bp. to 4.00 % yesterday. At the same time, NB keeps the tightening bias: ‘Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in September’. There is no reference to the rate path beyond September, but NB sees the incoming data since the June meeting as well in line with expectations. This implies that NB still keeps the possibility for further hikes, but that will of course be data dependent. Both the decision and signal should be well in line with market expectations.
In our monthly Geopolitical radar – No peace in sight for Ukraine, 17 August, we discuss that Ukraine has likely launched its main counter-offensive but their progress remains limited. Saudi Arabia recently hosted peace talks regarding Ukraine. Talks will continue but a peace agreement in near future remains unlikely. Also, US-China relations have remained fairly calm over the summer. Biden has put a ban on US investments in Chinese tech related to AI, microchips and super computers but the scope of the ban is narrower than the first draft proposals.
Equities: Equities saw another round of falls yesterday. US and Europe sold off about -1%. However, sector performance shifted in the US session, away from demand fear and into yields fear. Growth stocks underperformed with sectors like consumer discretionary and communication at the bottom. Value cyclicals, such as banks or materials, actually fared quite well. Hence, China is not fully to blame for the weak performance yesterday. VIX rose for a third straight day to 18, the highest level since May. Although Western markets are down 2-3% this week, there is no rebound in the cards today. Asian markets are in broad sell-off this morning and US futures are directionless.
FI: After an initial 6bp spike higher in yields in the 10y point, European rates traded mostly sideways through the day. The curve ended with a bearish steepening as the front end rose only 2-3bp. The US steepening of the curves, driven by the long end, is in the driver’s seat right now. 30y UST at the long end of the US curve is setting new highs since the banking turmoil in March. Next signals are the PMIs and the Fed’s Jackson Hole conference next week.
FX: GBP continues to rise driven by higher UK rates and NOK found some tailwind from a still hawkish Norges Bank yesterday. Meanwhile, SEK struggled yesterday together with AUD and NZD.
Credit: The credit markets were largely unchanged yesterday, with a slight bearish tilt amid renewed fears of central bank hawkishness. In this light iTraxx Main widened 0.1bp to 76.6bp and Xover widened 0.5bp to 424.8bp.