Markets
Talk about a slow, uninspired start of the week. Core bonds traded mixed with USTs slightly outperforming German bunds in technical trading. US rates eased between -0.8 and 3 bps. German yields rose 1.5 bps at the front while shedding 1.8 bps at the longest tenor. The dollar and euro settled an intraday fight to the advantage of the former. EUR/USD eked out a small gain towards but below 1.07. This was partially thanks to a sudden yet limited drop in USD/JPY from a new YtD high at 151.91 to a low of 151.34 amid option expiries. The pair nevertheless finished with a fresh year’s high at 151.72. Sterling rallied against both the euro and the dollar. GBP/USD rose from 1.221 towards 1.228. EUR/GBP eased from the recent highs just south of 0.875 to 0.871. We’ll leave it in the middle whether that was on the return of former PM and architect of the 2016 Brexit referendum David Cameron. (For sure it wasn’t.) Risk sentiment probably helped though. European stocks rose about 0.8%. The EuroStoxx50 confirmed the break above 4200. US indices opened negative but pared losses as the session evolved. Net daily changes ranged between -0.22% (Nasdaq) to +0.16% (Dow Jones). Commodities including oil (see below) and most metals rose.
News flow hasn’t really picked up in Asian dealings this morning. We fear it’s going to be a drawn out countdown to the US October inflation numbers. And even their significance for daily trading may be a bit overstated because of the conflicting signals they’re likely to carry. The headline figure is expected to drop from 3.7% to 3.3% but mainly thanks to base effects. These disappear for the remainder of the year, however, creating possibilities of CPI reaccelerating. The image for core inflation is more nuanced. Disinflation likely stalled in October with the y/y coming in at 4.1%. In addition, the monthly readings recently creeped higher towards an annualized inflation pace of 3-4% instead of the Fed’s desired 2%. FOMC members in our view are therefore right to retain a hawkish bias for now. There’s an avalanche of speeches, from policymakers at the ECB and BoE too, scattered across the day. They make a clean interpretation of the market’s CPI reaction additionally tricky. Either way we expect the recent correction low in US yields (4.80% in the 2-y and 4.48% in the 10-y) to serve as a strong supports. The dollar finds first support at EUR/USD 1.0764 (38.2% EUR/USD recovery on the Jul-Oct decline). The UK labour market report – still incomplete with the original (un)employment data series being reworked – lifts sterling this morning. Preliminary October employment came in at +33k vs a 17k drop expected while wage growth eased less than anticipated. We still think tomorrow’s inflation numbers will be the real deal for the pound though. EUR/GBP is nearing the 0.87 big figure.
News & Views
OPEC in its November monthly report stressed that global oil market fundamentals remain strong, calling the recent negative sentiment ‘exaggerated’. The demand side includes strong US growth and heathy oil demand/imports from China and India. OPEC even revised up its forecast for global 2023 oil demand growth to 2.5 mb/d. On the supply side the report mentions strong non-OPEC supply mainly driven by US production. At the same time, overall OPEC-11 production in October remained well below the agreed levels. Recent increase in shipments from the Middle East mirrors normal seasonal patterns. OPEC also said that oil inventories remain well below average levels. The report attributes the recent trend lower in oil prices to financial market speculators ‘as they have sharply reduced their net long positions over the month of October’. The report concludes that commitments to reduce production will contribute significantly to achieve and sustain global oil market stability. Brent oil yesterday rebounded from the $80.5 p/b area to close near $82.5 p/b.
Inflation in Argentina last month accelerated to 8.3% M/M bringing annual inflation to 142.7% Y/Y, the fastest pace in more than three decades. Inflation will be one of the biggest challenges for the new president that will be elected in a run-off vote on November 19 between current Economy Minister Sergio Massa and outsider Javier Milei. In a survey of the central bank published on Monday, economists even further upwardly revised their inflation forecasts to 185% at the end of this year. Economic activity is forecast to contract 2.0% this year and 2.4% next year.
