Allan von Mehren
Danske Bank A/S
Market movers today
Today's main event is the FOMC meeting (announcement 20:00 CEST). It is one of the interim meetings without updated projections (including Fed dots). We do not expect the Fed to send any new policy signals. We expect the Fed to repeat that high inflation is mostly transitory and that the labour market recovery has further to go still. Fed Chair Powell's press conference begins at 20:30 CEST.
This morning, Swedish and Norwegian retail sales in June are due out.
The 60 second overview
EU-UK negotiations: EU put the threat of immediate legal action against UK on hold to make room for more talks to find a solution to the recent conflict over the Brexit agreement. Officials said the two sides will be talking through the summer to find a solution.
Equities: US Stocks declined 0.5% yesterday led by tech stocks ahead of some key earnings reports from big tech companies. Apple reported a strong fiscal Q3 earnings report but the share dropped due to warnings from the company that chip shortages could impact sales this quarter.
The Chinese stock rout took a breather overnight with the Chinese offshore index in Hong Kong in slightly positive territory. After falling 17% over the past month, the index trades at a five-year low. It follows China's recent crackdown on some big tech companies and on the private education sector, which has spooked investor sentiment with rumours of big outflows from US investors.
FI: US 10-year bond yields took cue from risk sentiment and dropped 5bp yesterday from 1.29% to 1.24%. The FOMC meeting tonight will be key for the direction the rest of the week. 10-year Bund yields were 4bp lower yesterday going from -0.40% to -044%.
FX: USD continued to weaken on a broad basis yesterday with EUR/USD climbing further above 1.18 and USD/JPY falling below 110. In Scandi space, EUR/NOK tested 10.50 while EUR/SEK stayed just below 10.20. USD/CNY rose sharply above 6.51.
Credit: Credit remained under pressure yesterday where iTraxx Xover widened close to 4bp (to 238bp) and Main closed around 0.6bp wider (in 47bp). Cash bonds also sold off, with HY widening 2bp and IG 1bp.
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US versus the Eurozone: Inflation divergence causes monetary desynchronization
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