Market movers today
We kick the week off with German and Spanish October inflation data ahead of the euro area figures tomorrow.
In Germany, we also get the first estimate of Q3 GDP growth, where we will likely see a larger decline than the -0.1% we expect in the euro area tomorrow.
In Sweden the GDP indicator for September is being released, which will allow for a first estimate of the third quarter outcome. We are looking for a 0.3% growth in QoQ terms, but would like to remind everyone that the indicator tends to be of a very volatile nature. Later in the day governor Thedeén is talking about the “economic situation and current monetary policy” in New York at CET 18:00.
Early Tuesday, the Bank of Japan concludes a two-day policy meeting. We expect another tweak of the yield curve control this year and to us this meeting looks like the most likely one. If the BoJ decides to move tomorrow there are many ways to go. Raising the rate cap to say 1.50% could be one way. If so, they will make sure to stress that the intention is better market functioning and not a tightening move, even if both are true.
Overnight, we also get official Chinese PMIs.
Through the remainder of the week, we have many key data releases with euro inflation figures tomorrow, a bunch of important US data including the October jobs report and the FOMC meeting. We expect the Fed to remain on hold and jobs growth to cool to +180k, yet still continue illustrating solid labour market conditions.
The 60 second overview
War between Israel and Hamas. After Israeli army raid into Gaza last week, Israel has widened its ground offensive in the Gaza region by sending troops and tanks into the northern territory of Gaza. Israel’s Prime Minister Netanyahu declared it “the second stage of war” and has urged Palestinians living in the north to evacuate to the south. According to officials, the second stage is expected to last “months”. With civilian causalities rising, so has international concern, which has led US president Biden to emphasise the need to “immediately and significantly increase the flow of humanitarian assistance”
Central bank week. On Wednesday, we expect the Fed to remain on hold in line with consensus and market expectations, and look for no further hikes at a later stage either. On Thursday, we expect Norges Bank to keep the policy rate unchanged at 4.25% and to stress a data-dependent approach relative to a potential December hike. Later in the day, we expect the Bank of England to keep the Bank Rate unchanged at 5.25% on 2 November, which is in line with current market pricing. Overall, we expect the MPC to stick to its previous guidance emphasising the “higher for longer” approach.
Equities: Yields continued to set the tone for equities last week. Yields are also the reason for harsh earnings report reactions, not least in the FANMAG names. Equities were lower for the week and yields sensitive US underperformed (S&P 500 -2% lower, Stoxx 600 -0.8% lower and Nordics mixed). It was not a complete risk-off period though: Cyclicals have generally outperformed defensives over the week while growth- and quality stocks have been beaten. The small cap-sell off even stalled too. Communication, energy and health care were among the weaker sectors while materials, real estate and utilities recovered. Same dynamics followed on Friday with equities -0.5% lower. Sector performance turned around though as big tech was helped by Amazon earnings. VIX rose to 22. Asian markets are mostly lower this morning but US futures indicate an opening higher.
FI: European bond yields continued the rally on Friday with 10Y Bund declining some 2bp, the curves steepened and the 10Y Italian-German yield spread tightened modestly. In the US the curve also steepened from the short end, and this has continued in Asian trading this morning, where US Treasury yields have risen 2-4bp. This week we will get both inflation data from Europe as well as labour market data from the US. Today, Spanish and German inflation data is released.
FX: EUR/USD in wait-and-see-mode in anticipation of the Fed whilst USD/JPY is back below 150. Both EUR/SEK and EUR/NOK seems to be consolidating just shy of 11.80 waiting for the next trigger either up or down. Consolidation seems to be the theme for EUR/GBP, with the Sterling awaiting Thursday’s BoE meeting.
Credit: The credit markets ended the week on a cautiously positive footing due to the slight decline in longer term rates. Itraxx main tightened 0.1bp to 89.3bp while Xover tightened 0.9bp to 469.8bp. The overall cautious markets with still weak liquidity comes on the back of a mixed Q3 earnings season so far. With close to half of the companies in the EuroStoxx 600 index having reported, some 53.6% have beaten consensus on earnings, which is down around 3ppt compared to last year.
