Market movers today

UK CPI inflation is expected to rise further from 9.4% y/y to 9.8% y/y (consensus), which is the highest rate in more than 40 years.

US retail sales will add more clues to how much goods consumption is affected by the erosion of real wages from high inflation. Consensus looks for a small increase in total retail sales of 0.1% m/m pulled down by lower gasoline prices. Core sales ex autos and gas is expected at 0.4% m/m.

Tonight FOMC minutes from the meeting on 27 July will provide more insights into the thinking of the Fed and its' reaction function. We will look for clues on their views on continued 75bp hikes vs. going down to 50bp.

In Scandi, Norway will release consumer confidence for Q3.

The 60 second overview

The Reserve Bank of New Zealand (RBNZ) hiked the Official Cash Rate by 50bp overnight, which was fully priced in by the markets ahead of the meeting. Despite the weakening global growth outlook and lower oil prices, RBNZ remains worried that the persistently tight labour market will continue to support the underlying inflation pressures. The policy rate path was lifted from the May meeting, now signaling that the hiking cycle could be extended into 2023 and the policy rate is also seen remaining at the high terminal level well into 2024. Consequently, the GDP forecast was lowered and unemployment rate is seen rising higher than previously. The overall tone of the decision was clearly hawkish, RBNZ remains committed to bringing inflation back to target even if it will weigh on local economic growth over the coming years. Despite this, most of the uptick in NZD/USD eased quickly after the meeting.

The natural gas reserves in Germany may be increasing more than usual. Currently inventories could be almost 100% full by November, but it would still be covering less than three months' use given the aggregate demand from both households and corporates, if Russia closes entirely for the gas supply.

The main event today is the UK inflation numbers where the consensus forecast is for a rise of 9.8% y/y, which is the highest in 40 years. This will also put pressure on Bank of England to continue to hike rates despite the risk of recession. 

Equities: Global equities slightly higher yesterday as investor sentiment continued to improve and vol drifted lower, as the VIX is back below 20. Cyclicals made a small outperformance together with min vol stocks i.e. not a classic relationship and there were no strong trends yesterday. Consumer staples outperformed led by food and staples retailing on the back of much better than feared reporting from a couple of the big US retailers. In US Dow +0.7%, S&P 500 +0.2%, Nasdaq -0.2% and Russell 2000 -0.04%. Most Asian markets are higher this morning led by Japan while South Korea going against the trend. European futures once again higher this morning while US futures are more mixed.

FI: The sentiment quickly turned around in the European and US fixed income markets yesterday with bond yields rising and Bunds testing the 1%-level despite some very soft housing market data from US, but industrial production surprised on the upside.

FX: USD/JPY climbed back above 134 yesterday after the US CPI numbers drove the cross down from 135-levels last week. After the Prospera survey and after the CPI data last week we have witnessed a sharp rebound in EUR/SEK.

Credit: Credit markets continued the week in slight risk-off mode, amid a supportive tone in primary markets. ITraxx Main widened by 2.1bp to close at 94.3bp, while Xover widened 10.2bp to close at 474.2bp.

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