A mixed picture on the markets

Market movers today

The week is starting slowly on the data front with no major releases today apart from the IFO survey for May in Germany.

This week, focus will turn to the PMIs tomorrow, FOMC minutes on Wednesday, and the personal consumption expenditure report (PCE) which both will give insights into the goods and service consumption as well as the Fed's preferred inflation measure, PCE core.

Markets will also follow signals on the Monkeypox, a type of viral infection, which the WHO sounded alarm over during the weekend as 92 cases have been identified in 12 countries which are normally not detecting this infection.

The 60 second overview

In China, Beijing has seen a record number of Covid cases and thus the risk of a lockdown in Beijing is rising, The zero Covid policy has hit economic growth in China and focus continues to be on easing monetary policy in China. So far, the Chinese central bank cut the key interest rate for long-term loans from 4.6% to 4.45% on Friday last week. However, the Chinese stock indices are still down this morning, while other Asian markets are rising.

The focus on inflation is likely to rise given the combination of a possible food crisis as well as very hot weather. In South Asia the temperature has been rising and scientists are expecting a significant heat wave in the US. A similar picture is possible also in Europe and power use will surge as homes and businesses will increase the use of air conditioners. Hence, both food and electricity prices are likely to remain high and the possible base effect may take longer to recede.

ECB seems set on the first rate hike in July after Lagarde's comments on Dutch television during the week-end. She said that a hike may come "weeks" after net bond-buying ends early next quarter. However, the risk of a 50bp rate hike was "downplayed" given the uncertainty regarding the economic outlook.

Equities: Another volatile week came to an end Friday. US stocks ended close to unchanged but looking at the intraday moves equities were higher by more than 1% and lower by more than 2% during the trading session and hence the intraday vol is far from over. Healthcare a clear outperformer and consumer discretionary clear underperformer in a defensive rotation. In US Dow +0.03% (down for eighth-straight weekly decline, longest since 1923), S&P 500 +0.01%, Nasdaq -0.3% and Russell 2000 -0.2%. Asian stocks this morning mostly higher but China tech is dragging Hong Kong and mainland China lower. US and European futures higher this morning in the ball park of 1%.

FI: It has again been a very volatile week in the global fixed income markets with some significant moves in global yields. 10Y US treasuries have moved between 2.78% to 3% and the curve 2-10Y flattened some 11bp. The German yield curve also flattened between 2Y and 10Y, but from the short-end of the curve. 5Y5Y US inflation forward remains very volatile, while the 5Y5Y EUR inflation forward have declined some 10bp.

FX: USD/JPY finished last week below 128 and EUR/USD close to 1.06 as USD suffered a rare setback. EUR/SEK traded around the 10.50 level and EUR/NOK around the 10.20-10.35 level.

Credit:  Although initially having been in risk-on mode on Friday, credit markets ended in a mixed mood following the opening of US equity indices. Itraxx Europe widened 0.7bp to close at 98.9bp while Itraxx Xover widened 2.7bp to close at 480.5. Both markets ended the week below their intraweek highs of 101.4 and 493.2, respectively.