Market movers today
The main event today is Riksbank’s policy rate decision at 9.30 CET, with an expected 50bp hike in line with market pricing. We also expect Riksbank to signal another rate hike in his June. See the Nordic section below for more information.
On the data side, Swedish and Norwegian March unemployment rates are released this morning, along with German consumer confidence. US durable goods orders are expected to be released this afternoon.
Markets will pay close attention to the ECB’s final comments ahead of a period of silence starting tomorrow. de Guindos will be on the telegraph line today.
60 seconds overview
big: Equities fell across the board and core yields fell as risk-off dominated global markets and spreads widened within the eurozone. The turmoil in corporate earnings and concerns about First Republic Bank were the main reasons for the risk-off. Sour risk sentiment continued overnight in the Asian session.
Banking turmoil: First Republic Bank’s earnings report shows deposit outflows in the first quarter were just over US$100 billion at 41%, reflecting significant banking turmoil in March. reminded me.
US Politics: Incumbent President Biden has officially announced his campaign to become a democratic candidate in the 2024 presidential election.
EU debt: In yesterday’s FT op-ed, German Finance Minister Lindner reiterated his assertion that sound public finances require clear fiscal rules. He opposes the European Commission’s proposals for country-specific debt plans, calling instead for common fiscal rules, including numerical debt reduction targets, and additional measures to ensure compliance and better enforcement. increase. Overall, with a decidedly hawkish nuance from Germany, EU fiscal rule reform looks like an increasingly uphill battle. As explained in his Euro Macro his notes, Germany is reverting to old habits on her April 14th.
Stocks pulled back on Tuesday as losses accelerated into the US session. The S&P 500 fell -1.8% and the Russell 2000 fell -2.5%. The latter was pulled down by First Republic Bank, which plunged 40% after deposits fell -35%. The market went into recession fear mode, with all sectors falling, favoring defensives over typical cyclicals. Let’s call it risk off as the VIX rose to 19, yields fell in tandem with equities (the good old correlation), and industrial metals and oil fell 2-3%. A change in sentiment is expected as Nasdaq futures rose on strong tech earnings this morning.
FIs: Despite yesterday’s heavy supply to the market from the EU and Germany and Schnabel’s hawkish comments in our reading that clearly support next week’s 50bp rate hike, sour risk sentiment lifts 10-year German yields was reduced by 10bp. Uncertainty in his upcoming ECB meeting is high as to whether the ECB will make his 25bp or 50bp rate hike. The market price is 3.82%, 6bp lower than Monday.
FX: USD rallied yesterday and EUR/USD in particular was on a rollercoaster ride. Initially he rose above 1.1060 and then fell to around 1.0970, but the short-term interest rate spread between the US dollar and the euro narrowed. We believe this was largely due to deteriorating risk sentiment, including falling US stocks and oil prices.
credit: Overall, the secondary credit market was calm, but the primary market remained active. The iTraxx main remained unchanged and the iTraxx Xover widened 6bp from yesterday.
nordic macro
We expect Riksbank to hike rates by 50bp, raising the policy rate to 3.50% and signaling another rate hike of between 25bp and 50bp in June. This view aligns well with current market prices showing 50 + 30 + 15bp = 95bp at his three upcoming meetings. We continue to expect a final 50bp and peak rate of 4.0% in June. After a short-term rate hike, Riksbank’s rate path forecast from the last two meetings shows a perfectly flat profile through the end of the forecast period (which includes Q2 2026). If Riksbank chooses to do this again, it is only natural that the market will continue to ignore it. Notably, the market has priced in his first full rate cut of 25bp by Q1 2024 and is close to another 25bp rate cut in Q2 2024. Otherwise the limit will be too long. Inflation was weaker than expected in March, but the gap to Riksbank forecasts is still too wide (1.4 points core). Moreover, macro developments were also stronger than expected at the beginning of the year. The housing market is also showing firm movements, although we see this as temporary. As far as active QT is concerned, we don’t expect any changes at this time as it is still in its early stages. As for SEK, there is little room for Riksbank to disappoint the market. KIX-weighted SEK approaches his February level, prompting a U-turn on Krona news. Board members subsequently made it clear that increased interest in SEK should not be construed as having an exchange rate target. That said, excessive FX complacency risks further weakening his SEK. Given the current market price, the 50bp price increase should be SEK neutral. Positive guidance and overall communication become more important.
