Market movers today
Today we have a light calendar with no tier-1 data releases.
In the euro area, we receive September PPI figures. Producer prices have dropped like a stick this year after the sharp increases last year. In August, the index fell 11.5% and consensus looks for a further decline to 12.5% y/y in September.
In Germany, industrial production figures for September are due. The figures are interesting since GDP declined less than expected in Q3. If industrial production comes in weaker than expected Q3 GDP growth might be revised slightly down.
The 60 second overview
Fed SLOOS: The Fed’s Q3 Senior Loan Officer Opinion Survey (SLOOS) showed that a somewhat lower share of US banks’ reported tightening lending standards for commercial and industrial (C&I) loans compared to Q1 and Q2. Similarly, fewer banks reported weaker demand, although the share of banks reporting a recovery in loan demand also remained low. Lending standards for commercial real estate sector (CRE) continued tightening, as was the case for most consumer lending as well. Overall credit conditions still remain clearly restrictive, even if the pace of tightening is moderating towards the end of the policy rate hiking cycle. As financial conditions continued to tighten over the survey period, an increasing number of FOMC participants have now signalled that policy rate hikes are likely over. Last night, the Fed’s Lisa Cook echoed her colleagues’ recent commentary saying that she ‘hopes that current policy settings are restrictive enough’.
RBA: The Reserve Bank of Australia (RBA) hiked the Cash Rate by 25bp to 4.35% this morning after four consecutive holds in previous meetings. The decision followed an upside surprise in Q3 CPI, and RBA saw especially the sticky services inflation increasing the risk of price pressures becoming more persistent than anticipated. That said, its forward guidance was somewhat more dovish than earlier, as the statement no longer indicated that ‘further tightening may be required’. The door for hiking the policy rate is still open, but given the recent tightening in global financial conditions, we think the RBA is likely to remain on hold from here. The hike was widely anticipated by the consensus and mostly priced in by the markets ahead of the meeting, and the initial uptick in AUD/USD faded quickly. We still maintain a downward-sloping forecast profile for the cross in 12m horizon (0.62).
China: The October international trade data overnight was a mixed bag. Imports recovered more than expected (+3.0% y/y, consensus -4.8%), which could suggest that the recent policy easing is supporting domestic demand. But in contrast, exports fell more sharply than anticipated (-6.4% y/y, consensus -3.3%), as tightening financial conditions are restricting demand elsewhere. Overall trade balance weakened, with surplus declining to USD56.5 billion (from USD77.7).
Equities: Global equities were higher yesterday as the optimism from last week continued. However, the move in yields yesterday was not the driver of optimism but rather the expectation that peak yields are behind us. It is interesting to see in surveys how investors fear inflation less and less every month (Sentix yesterday). The turnaround in yields yesterday gave headwinds to REITs and small caps while the massive underperformance of defensives we saw last week paused. In US Dow +0.1%, S&P 500 +0.2%, Nasdaq +0.3% and Russell 2000 (1.29%). Sentiment in Asia much sourer this morning as volatile Chinese export data underwhelms. Futures in Europe and US are lower as well.
FI: European yield curves steepened from the long end with 30y Bunds up by 9bp on the day. This follows from the setback in yields seen last week and in particular following the FOMC meeting on Wednesday. The move was mostly observed in the cash bond space with EUR swap rates only partially following the move. 10y Bund ASW spread tightened 2.7bp to 52.9bp, which is a level not observed since early 2022. ECB’s Holzmann tried to push back on the dovish pricing in markets as he said that ECB should be ready to hike if needed. He also said that QT is not coming this year via end of PEPP reinvestments. Amid this, real rates were slightly lower on the day.
FX: The G10 FX market digested last week’s data and big central bank meetings on Monday. CHF, USD and EUR posted small gains vis-à -vis JPY, AUD, NZD and CAD. EUR/USD traded above 1.07 and USD/JPY below 150.
Credit: Secondary credit markets had a relatively uneventful day with muted activity. iTraxx Main was 1bp wider at 78bp while iTraxx Xover widened 5bp to 418vp. On a positive note the primary market activity was relatively high with a number of new issues – among others from Danone, Suez SACA and EPH Financing International. Furthermore, we saw financial issuance from the likes of Danske Bank, BNP Paribas SA, Deutsche Bank and Swedbank. Overall issuers took advantage of slightly improved market conditions and a clearer calendar to come to the market.
Nordic macro
Sweden: The SNDO publishes October figures for the Swedish budget balance (CET 8:00). Their own forecast from two weeks ago indicates a deficit of SEK4bn for the month. The 2023 full-year forecast was revised higher to a surplus of SEK31bn, up from a deficit of SEK15bn. For the coming two years the SNDO expect a deficit of SEK 49bn and SEK 60bn, respectively. Deputy Governor Martin Flodén will discuss the Riksbank’s view of the economy and work on monetary policy in a troubled world tomorrow at CET 15:10.
