Fed in waiting position, now more on ECB

Market movers today

In today's ECB minutes we look for a discussion about the degree of accommodation and its discussion on financing conditions.

German factory orders are likely to show a solid increase amid strong global demand.

In the US, the unemployment claims data will reveal light on the impact of lifting of controls in many states.

The 60-second overview

FOMC minutes: As expected, not much new in the FOMC minutes. Overall, the FOMC minutes confirm our view that the Fed bought time at its March meeting, as the policy makers think it is too early to change rhetoric amid the pandemic. According to the minutes, "various participants noted that changes in the path of policy should be based primarily on observed outcomes rather than forecasts". We expect the Fed will turn more hawkish possibly already in June but no later than in September when the normalisation is underway. Also, most FOMC members view "the risks to the outlook for inflation as broadly balanced". Higher yields reflect an improved economic outlook.

Global macro: At the G20 meeting in Rome, finance ministers and central bank governors agreed to boost the IMF by USD650billion and extend a debt servicing freeze to help developing countries deal with the pandemic. In addition, a pledge to fight trade protectionism was revived. See Reuters for the full story.

Equities: MSCI world managed to book a small gain yesterday as US stocks rose in the final trading hour. While Equities have trended slowly higher lately, the most interesting aspect has been the drop in volatility. Yesterday was no exception with VIX dropping to 17.16, the lowest level since March last year. Lower volatility in rate space, tight credit bond spread and very solid macro data suggest further drop in equity volatility near term.

Relative small divergence between sectors yesterday but small-cap stocks continue to be under pressure. Russell 2000 lost 1.6% yesterday and is now down 6% since the peak in March. Yesterday, Dow +0.1%, S&P 500 +0.2% and Nasdaq -0.1%.

Most Asian Equities markets are higher this morning despite concerns on rising Covid infections in parts of the region. US and European futures are in the green this morning rising in the ballpark of 0.5%.

FI: Long-end US government bond yields rose a few bp after the minutes of the FOMC meeting from March was released. In Europe, the syndicated deals from Italy (dual tranche of selling in the 7Y and new 50Y), Portugal, and KfW were heavily oversubscribed.

FX: Central European currencies in CZK, PLN and HUF were yesterday's top performers posting gains of roughly 0.75% vs the USD. EUR/USD started the session strong but erased gains during the US session. SEK and NOK were little changed while EUR/GBP reached the highest levels since early March.

Credit: In line with European equities, EUR credit was under slight pressure yesterday. iTraxx Xover widened 3bp (to 249bp) and Main closed 1bp wider (in 51bp). HY bonds widened 1bp and IG ½bp.

Nordic macro and markets

Denmark: The strong DKK led to further FX intervention from Danmarks Nationalbank (DN) in March of DKK17bn. It was the second month in a row with FX intervention. If it continues over the coming weeks, we expect DN to cut its policy rates by 10bp (see Flash Comment Denmark Rate cut draws closer after a big rise in FX intervention, 7 April). Rate announcements normally come on Thursdays at 17:00CET. We expect EUR/DKK to bounce above 7.4400 on the back of a rate cut.

Norway: In Norway, we expect housing prices were more or less unchanged in March, as supply increased. Signs of a looser housing market could raise doubts about the timing of the first-rate hike, but we clearly believe that the re-opening of the economy will be the decisive factor here.