US to start rebuilding oil reserves next year

Market movers today

There are only few key data releases left for 2022, and this week will be a quiet one ahead of Christmas as the main focus remains on digesting last week's central banks meetings.

German Ifo index will be released for December today, and consensus is looking for a modest uptick following the slightly less negative PMIs and ZEW released earlier, albeit from low levels. Early signs of a trough followed by potentially lower PPI tomorrow would be a welcome development for the German economy, which we expect to have fallen into a shallow recession in Q4. This afternoon, the US NAHB housing market indicator is also expected to remain at recessionary levels. 

Overnight, the Bank of Japan will have a monetary policy meeting. We expect the Band of Japan to stick to its outlier position among global central banks and keep its yield curve control unchanged.

Later in the week, markets will listen closely to any signals from central banks, ECB's de Guindos will be on the wires tomorrow, followed by Kazimir on Wednesday. We will also get the US November private consumption data on Friday afternoon - last week's retail sales figures pointed towards cooling private demand.

The 60 second overview

EU: EU member states meet today to talk about whether to lower cap on natural gas prices. The price cap is currently set at EUR275/Mwh, but some member states are pushing for a price cap below EUR200/Mwh. The European natural gas spot price dropped to EUR119/Mwh last week. Last time it was above EUR200/Mwh was in September.  

Fed: Cleveland Fed's Mester and San Francisco Fed's Daly on Friday hinted that Fed would need to keep the Fed funds rate at a high level for a period of time to ensure inflation falls back.

Oil: US plans to start refilling its strategic reserves next year. First step is to buy 3mb in February - a small purchase compared to the 180mb of selling. Oil prices dropped on Friday and if anything the market could be relieved that US looks to take its time to rebuild stocks.

FI: The sell-off in the fixed income markets continued on Friday and was primarily a result of the hawkish statements from ECB's Lagarde. The 10Y BTPS-Bund spread has widened some 30bp and credit spreads such as the ITRAX Main and X-over has also widened significantly. However, the 30Y high coupon Danish callables have performed well against Danish government bonds and Bunds and OAS-spreads have tightened for the Danish callable mortgage bonds.

FX: Despite the wide range of central bank decisions, last week ultimately failed to deliver any bigger lasting spot moves. Majors-moves vs USD were all kept within +/- 1% albeit AUD did post a slightly larger setback. Despite the hawkish ECB message the EUR notably traded poorly towards the end of the week highlighting how higher short-end interest rates is not always supportive of the currency when it also weakens the investment case of the asset market. SEK traded poorly towards the end of the week with EUR/SEK now trading back above 11.00. EUR/NOK remains close to the 10.50 mark.

Credit: The credit markets ended last week on a rather negative note. During Friday, iTraxx Main widened 7.3bp to 97.2bp while iTraxx Crossover widened 36.7bp to 506.25bp. The weakness in the CDS market was also visible in the cash bond market, where secondary bond trading and primary markets remained very inactive.