Market movers today
- We start the week in a quiet fashion on the data front, with markets continuing to focus on the ‘stagflation’ theme. Later this week the highlight will be Friday’s US jobs report, but we will also keep an eye on ECB minutes on Thursday and China’s ongoing property crisis (see Research China – ‘No ‘Lehman moment’ but financial stress is not over.
- Danish FX reserve figures are released this afternoon. The central bank has intervened in the FX market every month since February, apart from August, so it will be interesting to see whether it was necessary to also intervene in September, ahead Thursday’s rate cut.
- OPEC+ will meet to review output policy amid a growing global energy crunch.
The 60 second overview
Evergrande: Trading in Evergrande’s shares in the Hong Kong exchange was halted early Monday morning, as the company is reported to be in a process to sell 51% of its property management unit Evergrande Property Services. The sale could help ease the liquidity situation of the company, which has reportedly missed several debt payments over the past weeks. Another USD 260m dollar note guaranteed by Evergrande is set to mature today.
Looming energy crisis: Market focus continues to centre on rising global energy prices. This morning we published a piece looking closer at the drivers of elevated gas prices and the implications for growth and inflation in Europe, see Research Euro Area – Looming energy crisis creates a perfect storm. The gas price surge has been a result of recovering industrial demand, high demand for heating and cooling, and limited supply of gas and renewable energy. While the base case remains for prices to reverse lower in 2022, risks of more persistent effects on euro area growth and inflation remain. Elevated energy prices combined with cost-push inflation from ongoing global supply issues pose challenges for manufacturing and real disposable income, which European governments have already tried to soften (i.e. with France announcing a freeze to gas and electricity prices until April 2022 last week). Nevertheless, timing is unfortunate as the post-pandemic recovery is still vulnerable to setbacks.
US Macro: The ISM Manufacturing index rose in September to 61.1 (from 59.9). The sub-indices paint a picture of continuing strong growth, even if the rise was driven by longer supplier’s delivery times due to the ongoing labour and material shortages. Production edged slightly lower, new orders were steady and employment rose ahead of the key jobs report on Friday. The August Private Consumption growth picked up to 0.4% m/m (from revised -0.5%) driven higher by stronger goods consumption amid the delta outbreak in August.
Equities: Solid macro and an avoided government shutdown sent US markets higher and Europe off worst levels. Value was the name of the game, alike the rest of last week, with communication services, financials and materials among the outperformers. Meanwhile, quality/defensives like healthcare and utilities lagged. In total, S&P 500 1.2% higher, Dow 1.4%, Nasdaq 0.8% and Russell 2000 an impressive 1.7%. Risk-off appears to be back in markets today though, with US futures pointing lower. Similarly, Asian markets show broad declines this morning fuelled by Evergrande suspending trading in its shares. China and South Korea are closed for holiday.
FI: Equities and bonds had a strong start on Q4 with both equities and bonds performing on Friday. The yield on 10Y Treasuries declined some 3bp and the yield on Bunds declined 3bp as well. There is room for more volatility given the risk from Evergrande, where the next test is today – whether they can redeem a structured bond that is maturing today – which Evergrande have guaranteed.
FX: EUR/USD saw some mild signs of stabilization on Friday but we see more downside risk. Last week proved a rollercoaster-ride for NOK.
Credit: Particularly the high-beta segment of credit remained under pressure on Friday while low-beta showed more resilience. Xover widened almost 1bp (taking it to 254bp) and IG widened 0.2bp to 50bp. HY cash bonds were the biggest loser, widening 8bp (and widened 20bp for the week) while IG was unchanged.
Nordic macro
Sweden: Riksbank buys SEK 1.5bn munis, 2bn T-bills, 5bn covered and 1bn linkers during the week starting Tuesday. DO issues 2bn 1059 and 1.5bn 1056 on Wednesday and Kommuninvest also issues different maturities that day.
A triplet of August indicators – PVI, GDP and consumption – is released on Wednesday. Riksbank’s Jansson speaks about the economy Thusday and the Debt Office releases the September borrowing requirement that day too.
