Market players today
Today’s schedule is pretty slim.
In the United States, the NFIB Small Business Survey is quite interesting, especially its sub-components, which provide information on the labor market and underlying inflationary pressure. We expect the survey to reveal that the labor market remains tight, with many companies struggling to find skilled workers and expecting higher wage growth. At the same time, businesses are likely to state that a majority expects consumer price increases.
US Senate Banking Committee holds hearing on Fed Powell Chairman’s reappointment. We expect Powell to be approved without too much trouble, as he enjoys the overall support of most Democrats and Republicans, despite some criticism from left-wing Democrats and right-wing Republicans.
Also focus on rising geopolitical tensions between Russia and US / Europe / NATO.
The 60 second preview
US-Russian talks ended on a cautiously optimistic tone on Monday, pushing the RUB up. As expected, no agreement was reached, but the two sides agreed to continue talks. The representative of the United States, Assistant Secretary of State Wendy Sherman, said any major breakthrough would take several weeks, if not more. She also said the United States was open to discussing the size and scope of future military exercises as well as the positioning of intermediate-range missile systems in Europe. The United States had previously signaled that Russian requests not to expand NATO further east were unsuccessful. Russia, however, reiterated its demands in this regard while insisting that NATO should never allow Ukraine or other ex-Soviet states to join the alliance. The stakes remain high, with Russia having deployed more than 100,000 troops to the Ukrainian border and the possibility of large-scale economic sanctions against Russia raised in response to a potential attack. Attention now turns to Brussels, where Russia is due to meet NATO representatives on Wednesday, and to Vienna for OSCE consultations on Thursday.
Euro macro: The number of unemployed in the euro area fell by 220,000 in November, lowering the unemployment rate to 7.2%, a few steps from its record low of March 2020 when the pandemic struck. While the labor market recovery remains a bright spot, the triple headwind of new COVID-19 restrictions, ongoing bottlenecks and real erosion of household income are increasingly weighing on momentum macroeconomics of the euro area, as we discuss in Euro Area Macro Monitor – Triple Headwinds, January 10.
FI: Modest movements in yields and spreads yesterday after the sell off that started in mid-December. Since mid-December, 10-year US Treasuries and 10-year Bunds have risen by around. 35 bp. The German and American curves steepened between 2 years and 10 years, while 10-30 years flatten out in the United States and the German curve is almost unchanged from mid-December. The long trend is still to flatten the curves as central banks tighten monetary policy.
FX: The USD, JPY and GBP rose yesterday against Scandies and CHF. There were big moves on Monday, with EUR / USD registering a brief dip below 1.13 as one of the main highlights.
Credit: Secondary market spreads continued their widening trend yesterday. We see this as the result of continued rate hikes, but also as the result of an aggressive start to the primary printing season. Yesterday, the market saw a flurry of announcements of new transactions, including hybrid bonds from TotalEnergies (5.25 years at first call which set at 2%). This focus on the primary market pushed liquidity away from the secondary market, causing iTraxx Main to widen 1.2bp to 51.6bp and Xover by 4.5bp to 254.4bp. In cash, the movement was more moderate with IG widening by 0.5 bp and HY widening by 1.9 bp.
The Swedish Debt Office (SNDO) will present its monthly report on the net result of central government receipts and payments (the net borrowing requirement) for the month of December. Forecasts show a positive financing requirement (budget deficit) of SEK 91.5 billion. However, the two months since the last forecast (October) generated an overall surplus (over the said forecast) of around SEK 40 billion, and for the year as a whole the figure is even higher, so we wouldn’t be surprised to see today’s figure follow this trend.