Market movers today
Today is a quiet day on the data front and focus will likely remain on developments in the Israeli-Palestinian conflict.
US releases PPI while Fed members Bowman, Waller and Bostic will speak later today. Tonight the Fed releases minutes from the latest FOMC meeting.
The 60 second overview
Risk sentiment stayed robust yesterday with US equities adding 0.5% to Monday’s gains. China is reported to weigh further stimulus by adding at least another CNY1 trillion (close to 1% of GDP) to fund infrastructure such as water conservatory projects.
Natural gas prices rose further yesterday, while oil prices stabilised. Multiple shocks have hit the natural gas market. Israel shut down part of its production and exports following the outbreak of the war with Hamas. Finland is investigating a leak on gas pipeline that may be due to external drone damage. Weather has turned colder in Northern Europe increasing heating demand. Finally, there is a risk of new strikes among LNG workers in Australia. The 1M TTF future rose close to EUR50/MWh yesterday – the highest since the spring, but still much lower than it was the same time last year.
The Fed’s Daly said overnight that the neutral rate may be between 2.5 and 3%, higher than Fed’s current long-term projection of 2.5% but still quite a bit below the 4% level that the market is pricing short rates to stay around for years to come. She also repeated her view that the run-up in long yields could substitute for another rate hike by the Fed. Another Fed member Neal Kashkari was a bit less dovish on the back of the rise in long yields than some of his colleagues saying that if the rise in yields reflected higher expectations of Fed hikes, the Fed would have to follow through on that to keep yields higher.
IMF yesterday released its World Economic Outlook and lifted its’ global inflation forecast while stating that rates would have to stay high for longer. It is in line with what most central banks are communicating already, though.
In the Israel-Palestine conflict, Israel’s military said it is building a base for thousands of soldiers in preparation for the next phase of its retaliation involving a ground offensive. Hamas said it was prepared to kill hostages if Israel attacks. In an emotional speech from the White House US President Biden reiterated his full support for Israel and called the deadly attacks by Hamas “an act of sheer evil”.
Equities: Global equities were higher yesterday as yields came lower, while the conflict in Israel and Gaza seems to have little impact on investors. It was not a surprise that cyclicals were outperforming but more importantly, banks did well despite yields coming lower. In our opinion this illustrates the risk of being too negative and defensive currently. US indices were higher yesterday but ended quite a bit off the highest levels with Dow +0.4%, S&P 500 +0.5%, Nasdaq +0.6% and Russell 2000 +1.1%. Asian markets are mostly higher this morning with South Korea leading the advances. US futures are flat while European futures are a bit lower.
FI: There was a solid rally in US Treasuries heading into yesterday’s session and yields finished the day 15bp lower as comments from various Federal Reserve officials indicate that the Federal Reserve is on hold for now. Bond markets will focus on more Fed speeches today as well as the minutes from the recent FOMC meeting up to the US inflation data released on Thursday.
FX: Benign risk sentiment, on the back of reports of looming Chinese stimulus and dovish Fed speeches, supported the SEK yesterday with EUR/SEK trading around 11.50. Natural gas prices rose further yesterday as multiple shocks hit the natural gas market including Israel shutting down part of its production following the outbreak of the conflict. EUR/NOK rose after a significant downside surprise in September inflation.
Credit: Credit markets rallied strongly yesterday after US equities brushed off the flare-up of the Israel-Palestine conflict over the weekend. Itrax main tightened 4.2bp to close at 82.8bp, while Itrax Xover tightened 19.8bp to close at 441.1bp. Primary market activity also returned, with among others Danish ship finance (BBB+) launching a euro benchmark deal.
