A quiet start to a quiet week

Market movers today

• A quiet start to a quiet week. German industrial production for February is the main release today and is expected to rise 0.1% m/m following a strong increase of 0.8% m/m in January. GDP for Q1 is currently tracking 0.7%.

• Tonight Fed's Bullard speaks and US credit data are released later in the evening.

• Rest of the week the main events will be BoJ (Tuesday), FOMC minutes (Wednesday), Chinese CPI (Friday) and US consumer confidence from the University of Michigan for April (Friday).

• Inflation will be the main focus in the Nordic economies this week, especially in Sweden where Thursday’s inflation numbers are expected to show a fall to -0.3%. In light of this, we expect the Riksbank to cut interest rates in July. We do not expect rates to be adjusted at Wednesday’s meeting, although this cannot be ruled out.

Selected market news

The positive sentiment following Friday’s US employment report did not last long and equity markets faced a strong sell-off towards market close. Losses were led by the strong momentum stocks of 2014 and by selling in Tech and Bio-Tech.

The NASDAQ composite index fell 2.6%, its worst single day performance since November 2011, and the IBB NASDAQ Biotech ETF is now down almost 20% from its February peak. Stocks are mainly lower in Asia this morning but US equity futures are indicating some tentative stabilisation.

The employment report was actually decent showing a 192k rise in total payrolls taking the three-month average to 178k – which is not far from the pre-winter trend. The unemployment rate surprised by remaining at 6.7% but this was due to a rise in the labour force of 503k. As a result, Friday’s report is likely to spark speculation as to whether we are finally seeing US discouraged workers return to the workforce as the economy is recovering. This would imply less potential for the unemployment rate to fall even if employment continues to recover and implies less upside pressure on wages.

Overall, there is nothing in the report that should change the Fed’s policy of ending its QE programme this year and also nothing that should make investors expect earlier rate hikes. The uptick in the participation rate and flat wage growth in March may help explain the rally in US Treasury bonds but this is likely also a result of investors being short going into the report. The 10-year yield has fallen to 2.72% and thus back towards the middle of recent months’ trading range.