The movers on the market today
The French and Italian CPI figures for February are on the agenda, after those of Germany and Spain which were already surprised on the rise yesterday. Lane and De Guindos from the ECB will speak in the morning.
Today we expect Norges Bank to announce a change in April to a daily net sale of NOK in its fiscal FX trading.
US President Biden is expected to speak on efforts to reduce energy prices, including the release of oil from its strategic reserves. OPEC+ is also meeting and increasing its production is the focus.
In the US, the Fed’s preferred core PCE inflation gauge is out and we’ll also be keeping an eye on private spending data for February and comments from the Fed’s Williams on upcoming Fed hikes (we recently amended our call for the Fed, see Fed Update – Quickly Back to Neutrality with Frontloaded Rate Hikes, March 30).
China’s overnight PMIs for March are expected and we see downside risks, following recent headwinds from the COVID-19 outbreaks, tensions in the real estate sector and rising commodity prices.
The overview in 60 seconds
The United States will use its strategic reserves to drive down oil prices: The Biden administration announced yesterday that it intends to use its strategic reserves to drive down the price of oil which has seen upward pressure after the Russian invasion. The administration is expected to release about 1 million barrels a day for several months from reserves, which totaled 700 million barrels at the end of January. This decision is intended to counter the reduction in the supply of Russian oil which exported around 8 million barrels per day before the war. The International Energy Agency will try to pressure other countries to release oil from their strategic reserves. The price of Brent oil fell around $4 a barrel to 108 overnight. OPEC+ will also meet today, where the focus will be on boosting its oil production to counter the loss of Russian oil supply to world markets.
Rise in European inflation and massive sell-off in bond markets: Yesterday, amid soaring energy prices, inflation surprised sharply on the upside with draws from Spain at 9.8% and regional draws from Germany later confirmed at 7, 3%. This led to a market price hike by the ECB, pushing yields higher, particularly at the short end of the yield curve, with the 2-year point in Germany rising 5-7 basis points in the most jurisdictions, while the 10-year point was only 1-2 basis points higher.
Chinese PMIs fall amid COVID outbreak: China’s official PMI measure for the manufacturing and non-manufacturing sectors fell below the important benchmark level of 50, suggesting that the Chinese economy is facing headwinds amid the ongoing outbreak of the COVID-19 virus. 19 across the country and problems in the real estate sector. Yesterday, the Chinese government cabinet called on the country to prioritize stable growth and draw up contingency plans to deal with possible greater uncertainties. The firm is committed to respecting the objectives set for the year, in particular to achieve economic growth of approximately 5.5%. Similarly, China’s central bank has also been happy to provide more support to the economy, saying it will strengthen the breadth of monetary policy and make it more forward-looking, focused and self-sustaining.
Stocks fell yesterday driven by European, US and cyclical growth stocks. On the other hand, the defense has increased, led by Utilities. Oil was higher ahead of the decision to release reserves in the US and as a result the Energy sector outperformed yesterday. VIX and V2X a little higher and stock markets are still sensitive to news flow from Ukraine, although we argue that the effects will lessen over time. US stocks yesterday, Dow -0.2%, S&P 500 -0.6%, Nasdaq -1.2% and Russell 2000 -2.0%. As we look to tomorrow’s second quarter, we get a lot of the headline numbers where it will be interesting to see how much attention investors pay to good old fashioned macro data. As March yielded big losses on bonds while equities are higher, we could see rebalancing flows on the last trading day of the first quarter. Asian markets are a bit lower this morning while European and US futures are higher.
Effects : EUR/USD continued to rise yesterday as markets priced in more aggressive ECB tightening after higher than expected inflation impressions in Spain and Germany. For the same reason, EUR/GBP rose to 0.85. USD/JPY corrected lower yesterday after the recent surge and is now below 122.
Credit: After a strong performance in the credit markets over the past few days, we saw some slight profit taking yesterday with Main widening 0.8bp and ITraxx Xover 5.5bp.
Today we expect Norges Bank to announce a change in April to a daily net sale of NOK in its fiscal FX trading. If proven, April will become the first month since October 2013 that Norges Bank will outright sell Norwegian kroner and reflect rising Norwegian oil revenues amid rising global energy prices.