Rising tensions between Russia and the West

Market movers today

The week is starting out quietly with regard to economic releases.

Overnight we get Chinese industrial production and retail sales, which are expected to show a modest moderation in the growth rate relative to November last year.

This week central banks will be in focus with the Fed meeting on Wednesday, followed by ECB, Norges Bank, Bank of England and the Switzerland National Bank on Thursday while Bank of Japan is rounding off the week on Friday morning.

The 60 second overview

Tensions between Russia and the West over Ukraine remains high. Over the weekend, Biden warned Russia that it would face "devastating" economic consequences if it were to invade Ukraine. Biden's warning echoed a joint statement from the G7 foreign ministers that warned Russia to de-escalate its activities around Ukraine or face massive consequences. Among the actions being contemplated are sanctions targeting Russia's biggest banks and its foreign-exchange access. Furthermore, Germany's new government, which includes the Green party, has come under pressure to link the fate of the Nord Stream 2 pipeline to Russia backing off Ukraine.

Equities: The strong trading week was concluded on a mostly solid note. Improving inflation data (more below) helped boost the initially sour risk appetite on Friday. European markets gradually rose during the session, closing moderately lower and US markets higher. The negative correlation between yields and equities re-emerged, with growth- and defensives leading markets higher, helped by lower yields. Tech (Apple) and consumer staples were among the best performers, while banks lagged. S&P closed up 1%, Nasdaq 0.8%, Dow 0.6% and Russell 2000 -0.4%. VIX moved south of 20. Tech is driving gains in Asia this morning as well. US futures are pointing slightly higher.

FI: Friday's price action was a story of two themes. In the morning it was mostly a waiting game, and after the US CPI figure it resulted in a risk on/spread tightening move. Media headlines of a supplementary budget in Germany of EUR60bn (yet it was already floating markets last month) may have weighted on the underperformance in Germany. Peripheral spreads tightened around 4bp.

FX: The end to last week was characterised by a relief setback to the USD post US inflation while some of the more risk- and commodity sensitive currencies in RUB, MXN and GBP gained. EUR/USD is now back above 1.13, EUR/SEK remains in the mid 10.20s while EUR/NOK hovers above 10.10.

Credit:  CDS indices outperformed cash bonds on Friday where iTraxx Xover tightened 1.8bp and Main 0.5bp while HY and IG bonds widened 0.5bp and 1bp, respectively.

Nordic macro

Swedish markets will await November inflation released Tuesday and the big Prospera survey on Wednesday.