Market movers today
Today is victory day in Russia. We expect President Putin will escalate his rhetoric against the West. The market reaction is uncertain and will depend on the possibility of a Russian attack on other countries.
In Norway, we get industrial production figures for March.
During the rest of the week, focus will particularly be on US CPI figures.
We will also follow discussions on the EU’s sixth sanctions package and if an agreement for a Russian oil embargo is found.
The 60 second overview
Victory day in Russia: While fighting continues in Eastern Ukraine, Russia celebrates the victory day today. Putin could use the occasion to formally declare a war against Ukraine, which so far has been dubbed ‘a special military operation’ by the Russian side. Declaration of war would enable Russia to mobilize more troops from its reserves, and further increase the pressure following only very limited progress over the past weeks. See our earlier take on the topic in Research Russia-Ukraine – Several signals point to an escalation in the war in Ukraine as Victory Day looms, 26 April.
China: Chinese trade balance recovered in April, as exports rose 3.9% y/y and imports remained unchanged y/y in dollar terms, both slightly stronger than consensus expected. The figures are affected by base effects and rising prices, and both import and export volumes likely declined m/m. China is being hit by both weakening export demand, which was evident in the latest round of PMIs, but also the prolonging Covid-restrictions. Over the weekend, authorities of Shanghai once again tightened the city’s lockdown measures, with no end in sight in the near-term. Asian stocks have declined in early Monday trade, and oil prices have moved slightly lower due to rising recession risks, even though EU is set to discuss the Russian oil import ban further this week. China is likely to stick with the controversial ‘zero-Covid’ strategy for now, while increasing stimulus measures to support the economy. Chinese April credit data will be released this week, giving the latest sense of the strength of infrastructure stimulus.
US Jobs Report: US nonfarm payrolls grew by 428k in April, broadly in line with expectations despite the slight negative revisions. Wage growth moderated, but it still remained above pre-Covid levels at +0.3% m/m. With record high job openings, labour force participation still subdued and fast wage inflation, the overall picture of tight labour market conditions continue to support the case for fast Fed hikes, with around 68bp priced in for the next June meeting. See the details in our US Labour Market Monitor – Record-high job demand supports the case for more aggressive Fed tightening, 9 May.
Equities: Equities were lower on Friday with in new round of stagflation fears fuelled by the US job report. Hence value, defensive and low vol best performing while cyclical growth got heavily beaten down. Growth stocks down more than 20% year to date while value down only 4%. Since our latest strategy change 7 March, value has outperformed growth by 5%. The preference for value also visible in the US session at Friday with Dow -0.3%, S&P 500 -0.6%, Nasdaq -1.4% and Russell 2000 -1.7%. The risk appetite remains sour this morning with US futures lower and European futures even lower. Sentiment in Asia very negative as well with Japanese stocks down 2.3% this morning. Hang Seng (China) closed for Buddha’s Birthday holiday.
FI: The continued rise in yields and widening of spreads is seen as the result of rising possibility of a ‘disorderly’ exit by ECB given the combination of liquidity tightening. as discussed in COTW: Introducing ECB ‘LT’: QT in liquidity, 6 May, early rate hikes from ECB and no clear strategy to avoid fragmentation of the EU sovereign bond and corporate credit markets.
FX: On Friday, EUR/USD ended the day nearly where it started around 1.055, as markets appear to have settled on the view that the Fed was indeed hawkish, irrespective of hiking 50bp while ‘ruling out’ 75bp. EUR/GBP moved further up now trading around 0.855, as relative rates have started to support the cross slightly. EUR/NOK and EUR/SEK moved sideways around 10.00 and just below 10.50, respectively. EUR/CHF moved back above 1.04.
Credit: Credit markets had yet another tough day on Friday, with iTraxx Xover and Main closing 9.5bp and 2.2bp wider, respectively. Had it not been for a strong end to the session, the indices would have widened twice as much.