Central bankers (ECB and Fed) want to move early

Market movers today

The main event today is the flash PMI releases in the euro area and the US. On both sides of the Atlantic, we expect continued resilience in service sector activity, but look out for further signs of weakness on the manufacturing side given supply disruptions and rising prices.

New homes sales in the US may attract some attention as it may indicate whether the rise in mortgage rates are hurting housing activity.

Overnight, the New Zealand central bank (RBNZ) will publish its monetary policy decision. We expect RBNZ to deliver another 50bp, as they will likely prefer to keep front-loading the rate hikes amid continuing rise in local inflation expectations.

The 60 second overview

This morning, we have seen a decline in the Asian stock markets given the negative impact on the economy from the lockdown in China. UBS and JPMorgan downgraded their GDP forecasts for the Chinese economy. In Hong Kong, the equity market fell as Hong Kong is expected to continue with the hotel quarantine until at least through July. Hence, we have also seen US and European equity futures sliding this morning together with a modest decline in the oil price while US Treasury yields fell a few bp in Asian trade this morning.

Several Fed speakers have supported the current pricing of Federal Reserve moving fast. Fed's Esther George stated that the Federal Reserve needs to raise the policy rate to 2% by August while further tightening is determined by how the inflation would "cool off" as "the inflation we are now experiencing is obviously both too high and too broad to dismiss".

Today, we also have ECB's Villeroy speaking and after yesterday's comments from Lagarde, in which she pre-committed to a 25bp move in July and back to positive territory by Q3, then there will be even more focus on other ECB comments and whether they want to move faster as we have seen in the US.

Equities: Equities were higher yesterday with one industry, banks, standing out, rising 3% globally. The outperformance in banks yesterday more or less entirely driven by JPM lift of NII guidance. This should hardly come as surprise after yields have been sky rocketing and credit demand has been soaring in 2022. Nonetheless, this shows how some relatively small positive news can move the markets in times with high fear/scepticism among investors. In US Dow +2.0%, S&P 500 +1.9%, Nasdaq +1.6%, Russell 2000 +1.1%.

Wall Street has not carried over to Asia this morning were markets are led lower by China. US and European futures are lower this morning with growth/tech names dragging down in as Snap came with a substantial guidance downgrade after the market close yesterday.

FI: Yesterday, Bunds moved back above 1% on the back of the comments from ECB's Lagarde, in which she stated that the first move from ECB would come in July after the net purchases had ended in June. Yields increased across the curve and the spread between the periphery and Germany once again tightened. Finally, the Bund ASW-spread also tightened.

FX: Scandies were top performers yesterday, where JPY and USD were the biggest losers. EUR/USD climbed towards 1.07, EUR/NOK traded around the 10.25 level and EUR/SEK around the 10.50 level.

Credit: Mirroring the slight improvement in risk appetite the iTraxx EUR CDS index tightened 4bp to close at 96bp, while iTraxx Crossover tightened by 16bp to close at 472bp. Besides the flurry of new primary covered bond issues, financial issuers were also active in other parts of the funding structure yesterday with Credit Suisse issuing opco senior and Societe Generale raising senior preferred funding, both in dual-tranche formats.

Nordic macro

The Swedish National Debt Office releases a new funding forecast. 1) The borrowing requirement since the previous report has been about SEK 6bn lower than forecast during the Feb-Apr period, however, with a decreasing trend, 2) Roughly SEK 30bn more stimulus than assumed by the Debt Office has been proposed by the Government, the business cycle losing steam, rates moving higher and potentially bigger outflows from the tax account are all factors suggesting the Debt Office will have to cut the budget surplus forecast from just shy of SEK 140bn to some 60bn in 2022 and a smaller cut for 2023 to SEK 70bn, 3) we expect auction volumes to increase to SEK 3bn for nominal bonds and SEK 0.75bn for linkers after summer while some FX bonds may also be necessary to keep presence in in foreign markets, 4) net bonds supply after Riksbank QE, however, is only expected to rise moderately (nominal and likers to SEK 14bn and SEK 6bn respectively in H2).