Market movers today
There are no major data releases planned for today.
The most important release this week will likely be US CPI for October on Tuesday, which is extra uncertain this month due to possible effects from the auto workers’ strike as well as technical factors relating to health insurance premiums. Also worth watching is US retail sales on Thursday after the very strong September-print. The week also features a long-expected Xi-Biden meeting on Wednesday along with a string of Chinese data and a possible Chinese rate cut, and UK job and inflation reports.
The 60 second overview
Market focus and overnight: Following a series of weeks this autumn where the market-narrative has shifted considerably amid new economic data releases, last week was rather uneventful when in terms of new global macro information for markets to trade on. The week was initially characterised by a decline in global yields but towards the end of last week we did see a slight reversal of the rally in fixed income with yields moving back higher. First, a few hawkish remarks from prominent Federal Reserve board members including Chair Powell halted the decline. Then Friday’s release of University of Michigan inflation expectations showed a surprise rise in the 1Y measure from 4.2% to 4.4% (expected 4.0%) but more importantly the 5-10Y expectations also rose from 3.0% to 3.2% (expected 3.0%). Both drivers sent USD rates higher in a move that flattened the curve. We still think that we have hit the peak in Fed policy rates and do not envision a December rate hike. Also we still see the case for the first Fed rate cut to come as early as March.
It has been fairly quiet overnight with market sentiment turning slightly sour despite little new information and despite a late equity rally during the US session on Friday. On the data front Japanese producer prices were slightly lower than expected. Otherwise market focus is not least on US CPI this week and on US-China relations but also a seeming decline in geopolitical tensions in the Middle East is getting attention.
Oil. The oil market could be worth following in the coming weeks for a bellwether for the global business cycle. Oil prices dropped to the lowest level since July last week despite a severe Middle East crisis, Saudi Arabia hanging on to unilateral output cuts and a weaker USD. If the oil market does not reverse the recent losses global oil demand has likely deteriorated on the back of a drop in global economic growth.
Norway inflation surprise. On Friday, Norwegian core inflation for October surprised significantly to the topside. Core inflation rose to 6.0% y/y (expected: 5.6%) in annual terms while the (seasonally-adjusted) 3-month price growth rose from 2.9% to 4.9% . The details show that, somewhat surprisingly, there was a significant rebound in food prices. The prices of furniture/household equipment, air tickets, and hotel/restaurant services also rose more than expected, so the rise was quite broad-based. The release was a game changer in terms of the signals from previous months which had otherwise indicated a disinflationary trend. While Norwegian inflation releases are notoriously volatile the surprise rise in the October figures does challenge our narrative that underlying inflation clearly was in the process of decreasing. Given Norges Bank’s rhetoric at the monetary policy meeting on 3 November this sharply lifts the probability of a 25bp rate hike in December – although we do not see it as a done deal. Indeed if we are right in expecting a sharp downward correction in the November CPI figures and in the growth picture weakening (GDP, regional network, etc.) we would expect markets to question the outlook for a final Norwegian rate hike.
Equities: Global equities were higher on Friday as the US market rallied into the late hour of trading and secured yet another positive week for equities. The rally was led by cyclicals taking 5 days in a row last week and outperforming defensives by almost 3%. It is worth noting that small-caps have been left out of recent rallies as investors see the recession fear as a bigger concern for small-caps compared to large-caps. Energy made a small comeback on Friday but that does not change the fact of an almost 8% underperformance versus tech last week. In the US on Friday: Dow +1.2%, S&P 500 +1.6%, Nasdaq +2.1% and Russell 2000 +1.1%. Asian markets are mostly lower this morning with Taiwan being the bright spot. European futures are flat while US futures are somewhat lower.
FI: European rates were mainly trading sideways on Friday in the 5y+ segment, while the short end sold off by 2-4bp amid ECB president Lagarde saying that a rate cut is not coming ‘in the coming quarters’ and given spill-overs from the USD curve.
FX: Last week, FX markets were characterised by a setback to commodity currencies in the likes of AUD, NZD and ZAR. While NOK initially had a poor week, Friday’s Norwegian inflation surprise gave some support to the NOK returning EUR/NOK back below the 11.90 mark. EUR/USD was range-bound for the most part of last week although the final rise in short-end USD yields did contribute to sending EUR/USD below 1.07 on Friday. EUR/SEK remains close to the 11.65 area while EUR/GBP is back close to the 0.8750-mark.
Credit: Friday was a quiet day in the corporate bond market without significant news. iTraxx Main was 1bp wider at 76bp while iTraxx X-over was 4bp wider at 412bp.
Nordic macro
The only thing happening in Sweden is that vice Governor Aino Bunge will give the last speech of the Riksbank’s executive board before the blackout period starts up to their rate decision on 22 November.
