Market movers today
In Poland, we expect the central bank to take note of the recent high inflation print but not react by lifting its benchmark rate. There is a chance it may tighten monetary policy by raising required reserves for banks, something that three MPC members voted for at the April meeting. If this happens, EUR/PLN may extend its recent stretch lower.
Bank of Canada (BoC) is widely expected to leave policy unchanged at today’s interim monetary policy meeting. At the last meeting BoC tapered its bond buying pace and moved forward its indicated timing for the first rate hike to late 2022. This brought BoC in camp with Norges Bank as the few G10 central banks in the developed world moving towards tightening monetary policy. Today markets will look for any confirmation that BoC will taper bond purchases further at the 14 July meeting.
In Scandinavia, we get monthly national account figures in Norway and quarterly Prospera inflation expectations in Sweden. See the ‘Nordic Macro’ section for more colour.
The 60 second overview
Norges Bank to hike rates in September. Yesterday’s Regional Network Survey in Norway revealed a sharply accelerating growth outlook with contacts expecting “substantial output growth ahead”. The report revealed higher growth prospects across all sectors, higher investment and employment plans and signs of both higher capacity utilisation and rising cost pressures. This twitter-thread shows the most important details. In our view the release was the final data release needed for markets to fully price in a September hike. We expect Norges Bank to signal this hike at the 17 June monetary policy meeting. Importantly, the strength of the report also lifts the probability of yet another rate hike in December.
Chinese inflation. This morning’s inflation data out of China showed the fastest growing y/y rise in producer prices since September 2008 (+9.0% Y/Y). As illustrated by this chart the rise not least reflects the surge in commodities since the COVID-19 induced bottom in the spring of 2020. The rise in commodities risks putting business margins under pressure which has lead the Chinese government to warn against “excessive speculation” in the commodities market. China CPI also released this morning showed a more modest rise of 1.3% Y/Y. Market reactions were muted to the releases.
Equities: Global equities were basically flat yesterday with developed markets outperforming emerging markets. Outside small caps no strong rotation taking place as growth beat value by a small margin and cyclicals only slightly better than defensives. Energy sector continues to benefit from the rising oil price and has outperformed by 5% the last month. In US, Dow -0.1%, S&P 500 +0.02%, Nasdaq +0.3%, and Russell 2000 continues the strong run rising +1.1%, again with meme stocks in focus. Asian equities mixed this morning and just like other regions awaiting a driver that can send them either higher or lower. US and European futures are very little changed at the time of writing.
FI: It is a quiet day in terms of key economic data releases while we wait for the ECB meeting tomorrow as well as US CPI data also released tomorrow. US Treasury yields declined yesterday by a few bp. There was also a decent rally in the European fixed income market with Bunds dropping some 3bp.
FX: G10 FX remains a range play with limited spot moves and lower implied vols in recent sessions. EUR/USD keeps fluctuating just south of the 1.22 mark while GBP was quick to erase losses on virus fears and postponed reopening plans. While commodity currencies yesterday generally underperformed a strong Regional Network Survey in Norway limited NOK losses vs the USD. EUR/SEK was virtually unchanged.
Credit: Credit continued to grind tighter. Yesterday Xover tightened 1bp (to 243bp) and Main tightened (albeit modestly) to 49bp. HY tightened 1bp and IG ½bp.
In Sweden, Prospera’s big quarterly inflation expectations survey is due for release at 08:00. We believe it is likely to show a further rise in expectations, as seen over the past year. However, as we expect inflation to dip in June, we expect the next survey to follow suit. Stefan Ingves is scheduled for a speech at 09:00 CET. The title, ‘Where is the economy heading?’ sounds promising. We are eager to know.
In Norway, the GDP figures for April are in many ways yesterday’s news after the strong regional survey yesterday, as they will doubtless be coloured by the closure of much of the service sector and parts of the retail trade for most of the month. We anticipate only a moderate rise of 0.3% m/m in mainland GDP.
Read More: Norges Bank To Hike In September