Upward pressure on yields ease – For now

Market movers today

The ECB releases minutes from the latest meeting where focus will be on the governing council's deliberations on the policy announcements and the inflation outlook.

Little news expected from the Norges Bank interim policy meeting. See the Nordic and FX sections below.

The US releases the Philadelphia Fed business survey. New York released the Empire index on Tuesday, which dropped sharply, so it will be interesting to see if the Philadelphia survey mirrors that or not.

Turkey's central bank is due today, with market consensus expecting unchanged rates. With the rate cut last month and inflation running above 30%, even President Erdogan probably do not want to push for lower rates and even bigger underlying pressure on the Turkish Lira. No doubts Turkish markets will go havoc if the central bank makes a surprise cut.

The 60 second overview

Yields: US yields have eased slightly to 1.85% this morning after 10Y US treasury yield touched 1.90% yesterday mid-day and 10Y Bund yields traded in positive for the first time since 2019. The market has now priced in roughly four rate hikes this year of 25bp each, which is in line with our expectations, though we still see the market underestimating the amount of tightening that will be needed next year. Together with higher real rates and a higher term-premium we still see 10Y UST moving higher and we have a 2.25% target for this year. For more see Yield Outlook: Market rates and yields set to continue rising that we published yesterday.

China: As expected, the one-year and five-year loan prime rates were cut overnight by 10bp to 3.70% and 4.6%, respectively. The move mirrors the 10bp policy-cut earlier in the week. The rate cut together with the global easing in yields and stories that Chinese regulators are considering measures to support struggling developers have supported Asian equity sentiment this morning.

Russia-Ukraine crisis: Biden said overnight that Putin does not want a full-blown war. He also said that Russia will be held accountable if he moves in. However, importantly he said that he does expect Putin to 'move in' and he said that a 'minor incursion' might yield a lighter retaliation. The White House later tried to clarify and said that a renewed invasion would be met with a swift, severe and united response. However, Biden did face strong political critique after his comments being accused of basically giving Putin a green light. 

Natural gas prices:  So far this year - after last year's spike - gas prices in the EU have reacted with calm to the tensions between Russia and Ukraine. The Dutch benchmark TFF natural gas future fell by 9 % yesterday and prices are now back to levels seen in September last year though prices are still three to four times the level a year ago. Currently, a lot of LNG ships are arriving in the EU and also Norwegian supplies are picking up. The Biden comments could ease prices further today as the risk of US led sanctions cutting of gas to Europe now looks smaller. For more about the financial impact including natural gas prices of the Russian-Ukraine crisis see our Research Russia paper that we published January 14.    

Oil: Oil prices continue to rally along with the rest of the commodities space including grains that can be used for biofuels. Brent touched USD 89 per barrel last night, which is the highest level since 2014 and there is no clear signs that momentum will stop in the short-term and several analysts now argue that triple digit prices are returning. In our view, it is a sign of stronger demand as the world gets ready to move beyond the pandemic. There is also growing concern that low oil investments due to the pandemic and the green transition will keep supply restrained. That said, we do in the medium-term expect a normalisation down to around USD75/bbl, once tighter monetary conditions and a stronger USD start to take a toll on demand.

Equities: Equities were a mixed bag yesterday with European markets mostly higher while US dragging the world down and Japan showing huge drop. Part of this regional difference driven by big dispersion within sectors, tech and consumer discretionary sharply lower while defensive consumer staples and utilities higher together with late cycle energy and materials. In the US, Dow -1.0%, S&P 500 -1.0%, Nasdaq -1.2% and Russell 2000 -1.60%. Sentiment much more positive this morning with Asian markets higher, Hang Seng showing strong gains for a change. Futures in Europe and US also higher.

FI: Yields across the EUR curves saw only marginal changes and mainly with 0-1.5bp higher yields. 10Y German government yields rose during the above 0% for the first time since spring 2019, but ended the day just in negative territory. US yields are taking a drop after the long and large rise in yields since mid-December last year.

FX: Yesterday's session was characterised by a part reversal of Tuesday's price action as the USD rally faded and inflation/commodity sensitive currencies gained.

Credit: With a slight retraction in rates and also a modest improvement around the sentiment surrounding the Russia - NATO stand-off, credit had a decent day yesterday. Itraxx Main was tighter by 0.2bp to 53.5bp while Xover tightened 1.9 to 262.2bp.

Nordic macro

We think it is too soon after the December rate-setting meeting for Norges Bank to put out any new signals at today's "interim" meeting (no press conference or monetary policy report, only a press release). The bank raised its policy rate to 0.50% in December, saying that it will most likely go up again in March. Information since would support that: omicron seems to be milder than feared, unemployment has gone up less than expected, inflation has surprised to the upside, and global interest rates have risen. We therefore expect the bank to repeat its signal of a March hike.