Markets in wait-and-see mode

Market movers today

Today's key data release is the University of Michigan Consumer Survey where the main focus is on inflation expectations. Given the market is dead set on Fed 'only' hiking 50bp next week, a positive surprise today may lead to a change of mind, a rise in short-term US interest rates and another dent in EUR/USD. US PPI is also released today.

In euro area, our focus will be on the TLTRO early repayment option. Given the large uncertainty, we judge that our expectation of EUR300bn is broadly in line with the Bloomberg survey which was released yesterday (at EUR333bn). This will come on top of the EUR52bn as part of the maturity of the TLTRO operation.

The morning kicks off with inflation data out of Norway. Despite early signs of weaker demand having an effect on businesses' pricing power, we expect inflationary pressures to remain considerable with core inflation climbing further to 5.9% y/y in November.

The 60 second overview

ECB preview: At next week's meeting, we expect the ECB to deliver a 50bp rate hike with a hawkish twist. Specifically, we expect the ECB to present key principles of the end to reinvestments under the APP process (in which reinvestments will almost come to a full stop) and an open-ended wording for more rate hikes to come. This will be a compromise, which we believe will be palatable to both hawks and doves. We currently expect ECB rate hikes into Q1 next year, with the deposit rate peaking at 2.75%, but with risks skewed for more hikes. Read more on Research Euro area: ECB preview - A hawkish 50bp, 8 December.

Fed preview: A 50bp hike seems like the clear base case for next week's Fed meeting. That said, we expect Fed to deliver a hawkish message on the 2023 policy stance, as the recent data releases and easing in financial conditions suggest that the pressure to keep tightening will persist into 2023. We adjust our Fed call for the 50bp hike next week, but still expect Fed to reach a terminal rate of 5.00-5.25% by March. Read more on Research US: Fed preview - Tightening pressure to persist into 2023, 8 December.

FI: European rates grinded higher through the day and ended 3bp higher in core jurisdictions. Intra-euro area spreads widened by 2-4b amid parts of European out on holiday (Italy, Spain, Portugal). There was generally little market moving news yesterday.

FX: Another calm day for global FX markets, which seems to be in a wait-and-see mode before a busy week next week. EUR/USD edged higher again and above 1.0550 and USD/JPY held steady around 137. SEK and NOK were largely unchanged vis-à-vis EUR.

Credit: Credit market activity was once again fairly muted on Thursday, although still with a slight bearish tilt on index level. iTraxx main widened 0.5bp to close at 92.2bp, while iTraxx Xover widened 2.9bp to close at 469.9bp. Primary market activity cooled down somewhat compared to earlier in the week. 

Nordic macro

In Sweden, Riksbank vice governor Per Jansson gives his annual December speech (08:30 CET). The title is "Monetary policy when inflation is too high - conditions and challenges". Mr Jansson has since he joined the Board started a tradition to end the year with guiding speeches on how to conduct monetary policy in a changing world, addressing issues such as leaning against the wind, negative interest rates and the interaction between fiscal and monetary policy. His speeches have laid the ground for how the Riksbank has implemented monetary policy. Hence, worth a close read.