Today we only have tier 2 data. US existing home sales are expected to fall further from already low levels as high mortgage rates weigh on housing demand.
Tonight, the FOMC minutes will provide more insight into the Fed‘s thinking. However, they may be a bit outdated as the main theme at the time of the meeting was tight financial conditions. Since then, we have seen a sharp decline in bond yields and a rally in equities and credit bonds.
The Hungarian central bank meets today and we expect a 25bps rate cut to 12.0%.
We also have Canada’s CPI and the ECB‘s Lagarde, Schnabel and Centeno speaking later in the day.
The 60 Second Overview
Markets: Yesterday was another risk-on session with the VIX volatility index at its lowest level since mid-September. The USD weakened and oil traded as high as $83 per barrel. Industrial metals were also higher.
German Inflation: It has been very slow on the data front, but we did get German producer prices which fell 0.1% mom. They are now 15% below last September’s peak, which continues to weigh on goods inflation in the eurozone’s largest economy.
Equities: Global equities started the week higher as hopes for a soft landing failed to dampen positive sentiment. Yields were lower, credit spreads tighter, the dollar weaker and cyclical growth outperformed in the equity space. Not a classic old fashioned risk-on as yields moved lower, but a classic inflation relief risk-on rally as we saw after the last Fed meeting. In the US: Dow +0.6%, S&P 500 +0.7%, Nasdaq +1.1% and Russell 2000 +0.5%. Some of the optimism is moving to Asia this morning with most indices higher. China is taking the next step in bailing out its developers with a “white list” that should secure better financing terms. US and European futures are slightly positive this morning.
FI: Global yield curves flattened from the front end as the 2Y German Bund yield rose 4bp while the 30Y was unchanged. In the US, the curve flattened about 5bp between 2Y and 30Y after a solid auction of 20Y US Treasuries. This was the first long-dated Treasury auction after the very poor 30Y auction in early November.
Italian government bonds performed after Moody’s changed its outlook from negative to stable. Moody’s also upgraded Portugal by two notches from Baa2 to A3, despite the resignation of the Portuguese government and a snap election called for March 10.
FX:EUR/USD has stabilized above the 1.09 level in a quiet start to the week as the USD sell-off has continued steadily following last week’s soft US CPI print. Today, the focus is on the release of the FOMC minutes. The Scandies were the big winners yesterday, with EUR/NOK trading close to the 11.70 level and EUR/SEK ending the day around the 11.45 level. The Scandies were boosted by positive risk sentiment, while the NOK leg took additional comfort from a move higher in oil prices.
Credit: The positive tone continued in the credit markets yesterday and spreads tightened with the iTraxx Main closing at 68bp (-1bp) and Xover at 381bp (-6bp). The primary market was busy as both corporates (Ford, SNAM) and financials (Credit Agricole, Nationwide) priced deals in EUR. In the Nordics, Ericsson and Vestas announced new mandates.