market mover today
There are no major releases today so attention will turn to the series of central bank meetings due this week, starting with Riksbanken tomorrow, followed by the Fed (Wednesday) and Bank of Japan, Bank of England, Swiss National Bank and Turkey’s Central Bank on Thursday.
Also in focus on Friday are the preliminary purchasing managers’ indices on both sides of the Atlantic.
The 60 second overview
Markets: The week begins in risk-off mode as markets prepare for a series of upcoming central bank meetings. It should be a rather quiet day with light trade as Japan and Britain are off, with the latter marking a day of mourning for the late Queen Elizabeth II. All eyes are on Wednesday’s Fed meeting, where investors will see a 75 basis point hike as a done deal and some are calling for an even bigger hike. A Financial Times survey of top academic economists found that the Fed was expected to raise interest rates above 4% and stay there beyond 2023.
Hungary: Yesterday, the EU Commission said it plans to withhold €7.5 billion in EU funds to Hungary (or a third of the country’s total EU funds) over rule-of-law breaches involving corruption in public procurement. The decision to withhold the funds must be approved by a majority of EU member states, with the exception of Hungary, within a month, but the deadline could be extended to up to two months “in exceptional circumstances”. Hungarian authorities said yesterday they plan to pass a series of laws this week to address EU concerns. Yesterday’s decision by the EU Commission is likely to put the HUF under pressure today.
Geopolitics: In the past seven days, two conflicts have erupted in Russia’s neighborhood: an expanded version of the Nagorno-Karabakh conflict between Azerbaijan and Armenia, and a border conflict between Tajikistan and Kyrgyzstan. These conflicts could have broader long-term geopolitical ramifications as Russia appears to be taking an increasingly cautious approach to protecting its post-Soviet allies. The conflict between Azerbaijan and Armenia last escalated in 2020. At that time, the war led to a Russian-brokered ceasefire and Azerbaijan’s victory. Turkey’s material support for its neighbor Azerbaijan also played a pioneering role in the conflict. The latest conflict appears to be the second time that Armenia, a member of the CSTO, an interstate military alliance for post-Soviet states, has been left without any support from Russia. At the same time, US flags were raised over the weekend as Speaker of the House Pelosi paid a visit to the Armenian capital Yerevan and strongly condemned the attack by Azerbaijan. Similarly, Russia appears to be paying little attention to the border conflict between two CSTO members, Tajikistan and Kyrgyzstan, in Central Asia, suggesting that it has either little resources or motivation (or both) to seek peace and stability in the region at this time to promote. and protect his so-called allies.
Shares: Fears of inflation and recession continue to shift gears. On Friday, the latter took the lead. Positive inflation data coupled with Fedex’ profit warning underscored the shift. Defensive and growth sectors took the lead (like staples, healthcare but also technology), while energy, industrials and materials fell 2%. Dow -0.5%, S&P 500 -0.7%, Nasdaq -0.9% and Russell 2000 -1.5%. Futures are also slightly lower this morning.
FI: It’s going to be a busy week in terms of central bank meetings with the focus on the Federal Reserve on Wednesday and the possibility of a 100 basis point rate hike by the Federal Reserve. However, we start in Sweden with the Riksbank, where 75bp is fully priced in. In addition, we have the Bank of England, the Bank of Japan and the Swiss Central Bank. We expect that there will be a common factor for all central banks, and that is the ‘frontloading’ of tighter monetary policy in order to bring down inflation. This should result in flatter 2-10J and 2-5J curves and a stronger dollar.
FX: Major G10 crosses ended quietly last week as EUR/USD remained firm at parity. USD/JPY remains off-beat after BOJ ‘rate check’. SEK, NOK and GBP continued to trade lower against EUR and USD as stocks ended the week in the red. All eyes on all central bank decisions, especially the Fed – but also the two scandies.
Recognition: Credit markets ended the week in a risk-off mode as investors continued to weigh uncertainty from tightening central banks and stubborn inflation. Itrax Main widened 4 bps to close at 112 bps, while Itrax Xover widened 17 bps to close at 552 bps. Primary market activity was relatively muted on Friday.