Market movers today
- In the euro area, final HICP figures will reveal more details about the trend in underlying inflation pressures, after core inflation surged to the highest level since 2002 in October. We took a closer look at the euro inflation dynamics and outlook in Euro Area Research – Measuring the euro area inflation pulse, 15 November.
- UK CPI inflation figures for October are also on the agenda.
The 60 second overview
The dollar keeps strengthening: EUR/USD continued lower yesterday, following strong US data. In addition to relative macro surprises being USD positive, the more outspoken views by the Biden administration to act against inflation can equally be implied to be a USD-positive. Dollar strength has been a general theme over 2021 but has picked up pace since the late-summer. We continue to see more downside to EUR/USD, (still) targeting 1.10. In markets there has clearly been a regime shift favouring USD.
ECB increase cash collateral: Yesterday’s main attention was to the implications of ECB’s increase in cash collateral limit to EUR150bn. The sharp drop in Schatz-ASW spread in the end of Monday’s trading session of 3bp was completely reversed yesterday as it rose almost 4bp through the day. Schatz yields dropped 4bp in outright terms despite the announcement. There was no immediate effect over GC year-end turn. Bund-ASW similarly performed to 47.5bp which is the widest since the onset of the COVID-19 crisis.
US retail sales: The (nominal) US retail sales rose 1.7% in October and even when factoring in some increase in prices, this was a surprise. That said, the strong retail sales are also a reflection that the Covid situation is still having effect on consumer demand, as it equally indicates that goods demand remains elevated while services demand is subdued versus pre-Covid trends. With Covid cases rising in Europe already, we are likely to continue seeing such unusual consumption patterns in the US over the coming 1-2 quarters and goods inflation may stick.
Equities: Equities finished higher on Tuesday, bolstered by solid macro data. After markets have struggled for direction the last trading days, cyclicals took the lead, with consumer discretionary and tech among best sectors. S&P 500 and Nasdaq hit fresh records, gaining 0.4% and 0.8% each on Tuesday, Dow and Russell 2000 0.2%. Asian markets are not as compelled this morning, with most markets lower (Mainland China the exception). US futures have dipped slightly into negative.
FI: Inflation products performed during the day, and have proven quite sensitive to news about the natural gas supply heading into winter. The catalyst for 5y5y inflation 3bp higher and German 2030 linker 3bp lower was the news from Germany that it has suspended the certification of Nordstream2 pipeline.
FX: Yesterday’s session in FX markets was characterised by greenback performance while the rise in real yields and drop in gold weighed on ZAR. EUR/SEK edged back above 10.05 while EUR/NOK edged a few figures lower on higher natural gas prices. Finally, GBP gained on the stronger than-expected labour market report boosting expectations of a Bank of England rate hike in December.
Credit: Sentiment stabilized in credit yesterday where iTraxx Xover tightened 2bp and Main 0.2bp. HY bonds were unchanged and IG tightened 1bp.
