Market movers today
- It is the big inflation week with US CPI being the main mover coming on Thursday. If it comes out high again it will seal a 75bp hike by the Fed later this month. We also get CPI in Denmark (today), Norway (today) and Sweden (Thursday).
- This morning we get the Euro Sentix indicator for September, which has often given a good indication of PMIs. Consensus is a further decline from already low levels.
- Later this week we look forward to FOMC minutes (Wednesday) and US retail sales (Friday).
The 60 second overview
The US labour market report on Friday came in on the strong side with NFP printing at 263k vs. consensus of +250k. While this recorded a minor slowdown from 315k in August, the additional jobs kept wage inflation high at 0.3% mom amid labour force participation decline. The employment gains were broad-based across sectors. All things equal, this is hawkish for the Fed and nothing that indicates that Fed is about to pivot. Fed members continued its hawkish comments with Mester saying that they will not be cutting rates at all next year.
On Friday, the EU energy ministers met and as a result they committed to 1) reducing electricity demand by 10%, 2) cap the €180/MWh on electricity, while some countries wanted to go further than this. At the informal EU Summit in Prague, EC president Charles Michel said that the common goal is to reduce energy prices, where von der Leyen also said that a more detailed proposal will be presented ‘in the coming weeks’.
Geopolitical tensions are intensifying after a bridge linking Crimea and mainland Russia was attacked during the weekend. While so far no one has taken responsibility for the attack, it is said to be a blow to Putin who has called for a security council meeting today.
China: During the weekend, the Caixin PMI’s were surprisingly weak as the services component fell to 49.3 from 55 in the previous month. The composite dropped to 48.5 vs. 53 in August.
Equities: Equities did not like the strong demand and weak supply in the NFP report Friday. US markets dropped like a stone and finished close to day-low driven by cyclical growth stocks. Please note the drops came after a very solid start to the week and hence global equities finished last week in positive territory. Despite a lift to stocks last week, we still saw defensives outperforming cyclicals and VIX increasing further. This is a fine picture how equity investors are currently caught between a rock and a hard place. If demand data like PMI orders or retail sales come out weak, equities drop because of recession fear. If labour market data like NFP comes out strong, equities drop because of Fed over tightening fear. This game will continue for some time and with a negative correlation between bond yields and equities. In US Friday, Dow -2.1%, S&P 500 -2.8%, Nasdaq -3.80% and Russell 2000 -2.9%. Negative sentiment from Wall Street Friday has carried over to Asia this morning with equity indices being lower across the continent. US and European futures are lower this morning but off their early trading lows.
FI: Global rates jumped on the strong US labour market report on Friday, as the US added 263k jobs in September and recorded 0.3% mom wage growth which does not suggest a Fed pivot is imminent. European rates followed suit and ended the day 10bp higher at 2.19%. European rates markets have entered a full blown stagflation narrative, as markets have to weigh the inflation and recession themes. Ultimately, we believe that the recession theme will take over, but not for the imminent future as inflation keeps printing too high for central banks to accept. After two days of no Gilt purchases on Tuesday and Wednesday, the BoE bought more than GBP 900m in the past two days.
FX: The strong US jobs report completed the turnaround in sentiment and having almost tested parity earlier in the week, EUR/USD closed Friday’s session substantially below. Similar but opposite pattern for the SEK, which saw a benign start to the week turn into a weak close, with EUR/SEK above 10.90 and USD/SEK above 11.20 once more. NOK, on the other hand, found some support in higher oil prices.
Credit: Credit markets were weak on Friday where iTraxx Xover widened 23bp while Main widened 4bp. Cash bonds held up better with both IG and HY bonds closing more or less unchanged.
Nordic macro
At 11.45 CET the recipients of the Nobel Memorial Prize in Economics will be revealed. The Riksbank’s Henry Ohlsson will participate in a discussion panel Monday evening in conjunction to the Nobel Prize announcement, but we do not expect to hear any comments regarding current monetary policy given the setting.
Norwegian core inflation surprised strongly to the upside over the summer. Costs are probably still rising fast, but we think the slowdown in demand will gradually make it harder to pass on cost increases to customers. We therefore expect underlying price pressures to remain considerable but not mount further, and forecast core inflation of 4.8% y/y in September. This is slightly below Norges Bank’s forecast of 5.0% in the September monetary policy. We expect headline (CPI) inflation to ease from 6.5% to 6.0% y/y in September.
