Central bank signals and geopolitical tensions
The movers on the market today
The situation between Ukraine and Russia continues to be the focus of market concern, particularly the mobilization of Russian forces near the Ukrainian border and social media reports of skirmishes at the Ukrainian border from day to day. next day, but these are unconfirmed and the overnight market session has already reversed the initial risk. -disabled. Signs of yesterday’s de-escalation were the predominant view during yesterday’s market session. However, the situation remains volatile and late yesterday US officials also denied claims that Russia had withdrawn its troops from the Ukrainian border.
In the United States, there are a few Fed speakers today, Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard. In Europe, Lane gives an interview and a view of the general hawkish streak towards members of the ECB’s GC, this should draw some extra attention (15:00 CET).
Turkey’s central bank will meet today. In line with market consensus, we expect the CBRT to keep its key rate unchanged at 14%.
Riksbank Deputy Governor Anna Breman delivers a speech on the current economic situation at 09:00. Here, it can further explain its arguments for issuing a reservation against the asset purchase decision.
The overview in 60 seconds
FOMC Minutes: The key takeaway from the FOMC minutes is that the Fed recognizes that the current economic situation is very different from the last bull cycle in 2015-18 and therefore why this tightening cycle will also be different, as faster tightening is needed. . This means both faster and more meaningful QT as well as rate hikes. As Fed Chairman Jerome Powell mentioned at the press conference, the committee did not discuss the need for 25bp or 50bp at the March meeting, just that a tightening additional is required. We would like to point out, however, that we received another higher than expected inflation print after the January meeting and we now expect the Fed to hike 50 basis points in March and a total of 200 basis points basis over the year, see Fed Update: We expect a total rate hike of 200 basis points this year, starting with 50 basis points in March, on February 14, 2022.
Nordic energy dependency: We looked at the energy dependence of the Nordic countries. We find that energy intakes vary considerably from one Nordic country to another. The Danish manufacturing sector consumes much less energy than the OECD average. Norwegian works much more, while Finland and Sweden are more average. On the demand side, the picture is somewhat the same. For more, see: A Helicopter Look at Energy Dependence, 17 February.
EU decision: Yesterday the EU won a case against Poland and Hungary in a dispute over the distribution of EU funds. With the verdict, the EU can formally suspend EU funding to both countries. Poland has tried to break a compromise with the EU in recent weeks, but failed to block it. So we have to see what Poland’s response will be now.
Shares: Stock markets lost direction somewhat on Wednesday, despite a heavy Fed and macroeconomic agenda. As the FOMC minutes contained no hawkish surprises, the US pulled back to the close. Risk on the performance of the sector as well, with cyclical stocks in mind. Energy, Materials and Industrials are the top performers, likely fueled by strong retail sales numbers. The S&P500 closed up 0.1%, the Nasdaq -0.1%, the Russell 2000 -0.1% and the Dow -0.2%. US futures are pointing slightly lower today.
FI: European yields ended down 3 basis points on the day amid strong US retail sales data. Intra-euro zone spreads were mixed, with the pivot point of the curve being the 10-year point. After a few very volatile days in ASW spreads, we had a low volatility day where the 10-year Bund ASW traded less than 1bp.
Effects : Yesterday’s session was characterized by further USD decline as reflation sensitive and commodity currencies gained. EUR/USD has now rebounded around a big number over the past two sessions, bringing the pair back close to the 1.14 mark. EUR/NOK fell slightly to 10.10 while EUR/SEK remains in the 10.50 range.
Credit: Continued signs of de-escalation in the Ukraine-Russia standoff were offset by more hawkish signals from the FED amid inflation concerns. This translated into a mixed performance in credit spreads, with Main widening slightly by 0.3bp while Xover tightened by 1.3bp. The two indices ended at 66.4bp and 322.9bp respectively. IG cash spreads widened by 1.8bps and HY spreads remained unchanged during the day.
In Sweden, the monthly Prospera CET 08:00 survey will be of interest, although the quarterly is more weighted by the markets and the Riksbank. The Riksbank’s current, still relaxed approach is summed up by the following quote in the Monetary Policy Report: “The overall picture of long-term expectations is that they are currently close to the inflation target, but if they were to develop unexpectedly and persistently, be too high or too low, monetary policy should take this into account.” Room for interpretation as to where the trigger level is; our estimate is around 2.4 to 2.5%. In the short term, the upside risks on 1-year expectations remain given the CPI forecasts, while the impact on the 5-year should be more limited.
Interesting day in Norway, starting with important insights into wage and price expectations in Norges Bank’s fourth quarter expectations survey. A further rise in price and/or wage expectations would signal that capacity utilization continues to rise and could force Norges Bank to take a more aggressive stance at the March rate-setting meeting. In addition, the first quarter oil investment survey will also be exceptionally interesting as it includes the first estimate for 2023. Given the rise in oil and gas prices and the tax breaks given to the oil industry in response to the pandemic, we expect oil investment to grow by around 10% in 2023. As a result, Norway will get a substantial boost in oil investment next year. It’s also time for central bank governor Olsen to deliver his last annual address before retiring. The content of these speeches is normally quite structural, but at times like these we will also be watching closely for any signals on current monetary policy.