Market movers today
Today Bank of Canada is set to hike policy rates for the second time in the cycle and announce a passive roll-off of its balance sheet likely beginning in May. Consensus and markets are leaning towards a 50bp hike but we cannot rule out another 25bp hike even if recent inflation surprises and labor market data do suggest that Bank of Canada – like neighboring Fed – has fallen behind the curve.
Today is a quiet day in terms of economic data releases. Note that there are no Danske Morning Mail tomorrow and Friday due to Easter. Tomorrow, the key event is the ECB meeting, where we expect Lagarde to put a September rate hike into play.
This morning, UK CPI inflation is due out. We expect another increase, which supports the case for more rate hikes.
In Sweden, the small Prospera inflation expectations survey is due out, which is an important input for the timing of Riksbank rate hikes.
The 60 second overview
US FI rally: It was a choppy trading session yesterday where notably the US treasuries dropped 10bp on the US CPI release as markets focused on the 0.3% mom increase ‘only’, rather than the 8.5% headline figure. The EGBs followed suit, but only by 4bp, accelerating the yield decline initiated by a further deterioration in the German ZEW figure released earlier on the day. By the end of the trading session we were left with a bullish steepening of the EGB curves. The long end of the curve has recorded some very volatile trading sessions. The 10s30s EUR swap started Monday morning close at -24bp, but now stands at 18.5bp.
RBNZ: In line with our expectation, the Reserve Bank of New Zealand (RBNZ) hiked its official cash rate by 50bp in its meeting overnight. RBNZ was worried that the ongoing global inflationary pressures would increasingly feed into higher long-term inflation expectations amid fast domestic inflation and tight labor market. While RBNZ did acknowledge the rising economic risks, it also noted that despite the earlier rate hikes, the current level of the cash rate is still considered stimulatory and thus it was willing to accelerate the process of moving towards neutral. This is in line with our general view that global financial conditions still need to be tightened further. While consensus was expecting only a 25bp hike, a 50bp move was largely priced in the markets ahead of the meeting, and the initial rally in NZD faded quickly.
Equity: Equities lower again yesterday but in a bit more rollercoaster session where both US and Europe were in green during the day. Better performance in cyclicals yesterday and also small cap holding up better as yields finally took a pause on back of the US CPI number. VIX a tad lower as well. Asian stocks are higher this morning with relative strong gains in both Japan and South Korea. US futures are higher while European once are lower this morning.
FI: It was a choppy trading session yesterday where notably the US treasuries dropped 10bp on the US CPI release.
FX: The US CPI induced setback to USD proved short-lived with the DXY index posting new highs and EUR/USD reaching new lows just north of 1.08 at close. Both EUR/NOK and EUR/SEK price action was dominated by EUR-weakness brought by another rise in energy prices. GBP/USD keeps testing the 1.30-mark.
Credit: Having trended wider over the past week, iTraxx Main held steady at 78bp yesterday. Meanwhile, iTraxx Xover was slightly bigger by 6bp to 370bp. Despite the Easter week, there was some activity in the primary market yesterday, with UK power company SSE printing a EUR1bn hybrid, though demand did not seem overwhelming indicating that the market is still challenging.