In focus today
Today is quiet in terms of data releases. Focus remains on developments between the US and Iran and implications on markets.
Economic and market news
What happened overnight
In New Zealand, the Reserve Bank decided to maintain its cash rate at 2.25%, in line with market expectations. Despite holding rates steady, policymakers signalled that they will most likely need to increase rates sooner than envisaged in the February Monetary Policy Statement, with revised forecasts implying at least two more hikes by the end of the year.
What happened yesterday
In the US-Iran war, Iran condemned the US attacks on Iranian vessels and missile launch sites on Monday evening, arguing that they were a violation of the ceasefire. Iran’s Revolutionary Guard reserved the right to retaliate. Despite the escalating tensions, back-channel talks between the two sides appear to continue, with both parties believed to be seeking a diplomatic resolution. Signs of normalisation are also emerging domestically, as Iran began restoring public internet access after one of the world’s longest nationwide blackout periods.
In Sweden, April PPI increased 1.1% m/m and 4.7% y/y, up from 2.0% y/y in March, largely reflecting higher energy prices as expected. Export prices increased 2.5% m/m and import prices 3.3% m/m, with the main driver in the latter being higher crude oil prices. Domestically, prices fell but were offset by higher prices for refined petroleum products, as well as plastics, metals and motor vehicles. Looking ahead, further PPI increases are anticipated, driven by continued price pressures and ongoing supply disruptions.
In Hungary, the National Bank of Hungary held its base rate unchanged at 6.25%, as expected, with signals of easing ahead. A strengthening forint, buoyed by Péter Magyar’s election as Prime Minister, has supported a favourable inflation outlook, contrasting sharply with inflation pressures in other EU countries.
Equities: Equities were generally higher yesterday, with US in catch-up from holidays. S&P500 up 0.6% but small cap Russell 2000 the standout, up 1.8%. It is rare to see small caps performing so strong in what many perceive as a narrow tech rally (16% vs S&P500 10% ytd). Especially, as consensus has turned from rate cuts to rate hikes over the last months. However, we continue to like small caps. Although tech took the attention in the last earnings season, the rest, “S&P 493” delivered the strongest earnings growth since 2021. Earnings are turning, macro support even higher earnings growth ahead and valuation is attractive.
This was another hot day for momentum stocks, up 3.4% in one go. Tech did the bulk of this, with Micron rallying 19% (!) after UBS tripled its price target. The chip frenzy is continuing in Asia this morning with Kospi up 4%. Samsung the standout, having reached a deal with workers this morning and averting the 18-day strike. This is actually good news for everyone, as a strike would have amplified the chip shortages even further. US and European futures are slightly higher this morning.
FI and FX: Brent oil is declining somewhat overnight from yesterday’s peak of USD 100.5/bbl down to USD 98/bbl. Given the more limited move, US yields are also trading somewhat lower overnight with the 2Y UST at 4.015% and the 10Y at 4.47%. EUR/USD continues trading in a narrow range just above 1.16. In Norwegian markets we are beginning to see a reverse price action in FX relative to USD moves; when the USD strengthens the NOK does poorly and vice versa. RBNZ kept rates on hold at 2.25% as expected, but in a split decision where Governor Breman had the casting vote to keep rates on hold as three members voted for a hike. The NZD strengthened on the decision and front-end yields rose, as the bank signalled that the policy rate most likely will need to rise more and sooner than previously thought. Today’s macro data calendar is thin.
