Market movers today
- Today’s main event is the Bank of England (BoE) meeting. As it is one of the interim meetings, we do not expect major policy shifts. That said, we think risk is skewed towards a slightly hawkish shift (as we have seen with other central banks lately), partly because inflation is now running above the 2% target. The postponement of the full re-opening by four weeks due to the delta variant should not be a major game changer. Ignore outlier comments from Andy Haldane, as it is his last meeting.
- Consensus is looking for a slight increase in the German IFO survey today.
- In the US, we get preliminary core capex data for May and weekly jobless claims.
- Many Fed speeches today where we will continue to look for what the different policymakers think after the hawkish shift at the June meeting.
The 60 second overview
PMIs: Euro area composite PMI at 59.2 suggests business activity grew at the fastest rate for 15 years in June. Although manufacturing reported the stronger pace of growth (63.1), it was the service sector that drove the rise in economic activity (58.0 from 55.2 in May). Overall, June PMIs suggest the euro area recovery picked up further pace at the end of Q2, helped by ongoing strong manufacturing activity and a service sector that is increasingly taking over as a more important growth driver again with the gradual re-opening of economies. US PMI composite fell, mostly because PMI services fell, but the PMI services index in the US is harder to interpret, as transportation seems to play a larger role. We are more interested in the monthly private consumption data for May due out on Friday.
Hawkish FOMC members: We have known for a long time that Robert Kaplan (Dallas Fed President, non-voting FOMC member) is a hawk, but we now also know that Raphael Bostic (Atlanta Fed President, voting FOMC member) is more hawkish calling for a rate hike by the end of 2022 and saying that the tapering decision may be taken in 3-4 months. We still expect a more hawkish Fed to be a major market driver in H2.
Equities: Global equities slightly lower yesterday, dragged down by Europe. The drop came despite cyclicals outperforming defensives and implied volatility measured by the VIX fell. Utilities once again the biggest underperformer while consumer discretionary led on retail strength. In US equities were mixed with Dow -0.2%, S&P 500 -0.1%, Nasdaq +0.1% (all-time high) and Russell 2000 +0.3%. Asian equities mixed in quiet trade this Thursday morning. US and European futures broadly higher this morning.
FI: US yields continue to trade around the 1.45% to 1.5% as some Federal Reserve officials were calling for a tighter monetary policy already in 2022 as well as deciding to taper bond purchases sooner rather than later. In the European market bond yields fell and the spread compression continue although at a slow pace.
FX: AUD, NZD and GBP gained vis-à-vis EUR, SEK, and JPY yesterday. EUR/GBP traded as low as 0.8530 – the lowest since April. EUR/USD range traded just above the 1.19 level.
Credit: While European equities ended yesterday in red, credit performed well, with iTraxx Xover tightening 5bp (to 230bp) and Main 1bp (to 46½bp). HY bonds tightened 1bp and IG ½bp.
No major data releases in the Nordics today. In Sweden, it is Midsummer tomorrow.