Market movers today

This is a very quiet week in terms of data and hence markets are likely to focus on last minute central bank commentary. The FOMC blackout period kicked off already on Sunday, but today we have a bunch of ECB speakers on the wires.

Euro area retail sales for April are also released today.

Later in the week, we will get trade data from China and the US on Wednesday. Norway May CPI print and Swedish industrial production data for April are released on Friday.

The 60 second overview

US ISM services slowed to 50.3 from 51.9 in April, which was a modest surprise to the downside, but it was a broad-based decline in business activity, new orders, prices paid and employment. The signals were slightly weaker compared to the services PMI, which was more upbeat especially on new orders. The good news for the Fed is that price pressures appear to be gradually easing also in the services sector, which supports our view that the Fed is likely to pause rate hikes at next week's meeting.

Energy: While oil markets were little affected by the Saudi Arabia cut in oil output from July, natural gas prices rose sharply yesterday and ended 20% higher in the Netherlands, which is a careful reminder of the fragility still prevalent in the energy markets.

US labour market: On Friday, the US labour market report was strong and showed +339k, well above consensus of 190k. However, as markets focused on the wage inflation which slowed to 0.3% with negative revisions, we saw only a limited market reaction.

Turkey: During the weekend, we got positive policy signals from Turkey. On Saturday, President Erdogan appointed Mehmet Simsek as the country's new treasury and finance minister. Simsek served as finance minister and deputy prime minister between 2009 and 2018 and was highly regarded by investors. Simsek is an economist and a former banker and he is of Kurdish origin. In our election review a week ago, we highlighted the risk of an eventual currency crisis in the absence of a policy turnaround as there were no signals of such. Now, the situation has changed in the sense that there is a signal. During his first remarks after the appointment Simsek said 'Turkey does not have any choice left other than returning to rational policy making'.

RBA: The RBA hiked its policy rate by 25bp this morning in its latest attempt to curb inflation and said that further tightening may be required.

Equities: Global equities mixed yesterday with Japan standing out as the best performer while Europe being the laggard. This of course just a one-day observation but in general, many of the old-fashioned drivers and correlations have not been working well this year. Both Europe and Japan are typically a cyclical value play but this year the relative macro strengths have led the equity performance. Hence, Europe outperformed at the beginning of the year while Japan has outperformed Europe by ~10% since 1 March. Sector and performance a bit mixed yesterday with consumer discretionary higher (led by autos) and tech lower. In US Dow -0.6%, S&P 500 -0.2%, Nasdaq -0.1%, Russell 2000 -1.3%. Asia and not least Japan continue to look strong this morning while futures in Europe and US are basically unchanged.

FI: Natural gas prices surged through most of yesterday driving inflation products higher. The rise in energy prices seems to be driven by the Saudi Arabia's decision to cut output from July. Natural gas price rose 20%, taking the HICP fixings through H2 23 up by c. 4bp. 2y2y inflation swap rose 9bp on the day. As a result of the energy driven market developments, curves flattened from the front end, where 2y German yield rose 8bp. Intra euro area spreads were tighter across the board. ECB is priced to peak at 3.8%.

FX: Saudi Arabia's decision to slash output another 1mb/d left little mark on the oil market and consequently on the FX market. USD/JPY rose briefly above 140 and EUR/USD dipped temporarily below 1.07. EUR/NOK and USD/CAD were about unchanged.

Credit: Following the last couple of days with strong performance, credit markets took a breather yesterday where iTraxx Xover widened 5bp and Main 0.7bp. New issue activity remained high and continued to be driven mostly by financials. 

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