Slight rebound, but sentiment remains mixed

Market movers today

Another day without much on the agenda. Some focus on delta outbreaks around the world (especially in Europe and in the US) after COVID-19 was blamed for the risk sell-off on Monday.

Besides that, the US mortgage applications are somewhat interesting, as the US housing market is cooling after a hot start to the year.

The 60 second overview

Chip supply: Semiconductor manufacturers have had a difficult time meeting demand over the past year, which has been one driving force behind the recent surge in producer and consumer prices. For the U.S. car industry the lack of chips are putting a serious strain on production capacity, which has prompted the U.S. government to negotiate directly with manufacturers and local governments in South-east Asia. These negotiations are now paying dividends as supply has increased for auto manufacturers, according to the Biden administration. In the longer run both the U.S., EU and China are making efforts to reduce reliance on global chip supply chains, which have proved complicated during recent lockdowns. In the near future, however, supply disruptions will remain as both Vietnam and Malaysia, integral parts of the semiconductor industry, has been hit by record levels of covid-19 infections.

Lower growth momentum indicated in UK: Lloyd Bank's business survey shows that the overall pace of the U.K. recovery lost a bit of steam in June with 9 of 14 business sectors reporting a slowing expansion and most sectors were less optimistic regarding their own potential over the coming 12 months. The Bank of England will publish new economic forecasts on 5 August.

Equities: US equities rebounded strongly yesterday after Monday's setback with the S&P500 enjoying the best day since March at +1.5%. Thus, the positive sentiment indicated already in pre-trading hours was maintained throughout the day after Asian indices had declined. Performance was driven by cyclicals over defensives with small caps returning +3%. VIX also came lower ending the day at 19 points. This morning Asian stocks are generally higher, while futures indicates a mixed US open, while positive in Europe.

FI: 10y US treasuries ended the day roughly unchanged at 1.22% after briefly touching 1.13% during yesterday's session. Curves steepened 4-5bp as the short end continues to grind lower with 2y treasuries standing at +20bp. Thus, rates markets have taken out some hiking probability recently, however, still pricing a bit more than a 50% probability of a 25bp hike within the coming 12 months.

FX: Yesterday brought a volatile session for commodity FX and not least NOK. EUR/NOK temporarily traded as high as 10.70 before the US session returned the cross to 10.60. We emphasise that this NOK sell-off should be seen in light of global developments (deflated reflation trades) and not domestic news. EUR/SEK held surprisingly steady around 10.25 throughout the day. The strongest correlation remains with EUR/USD, and until we see the USD break new grounds in either direction it is likely that EUR/SEK will trade close to current levels.

Credit: The credit markets yesterday took a breather from the recent risk-off trend. Both itraxx main and xover were largely unchanged during the day, ending at +49bp and +246bp respectively.