Market movers today
The data calendar is relatively light today, with US capital goods orders and weekly jobless claims as the most interesting.
Also, we will get a rate decision from the Central Bank of Turkey, where we are likely to see a hike from the current 17.5% as inflation is again accelerating. We have no guidance about the size of the hike, and analyst expectations range from 100bp to 250bp. We expect that hikes will continue and the rate eventually reach 25%.
The 60 second overview
Weak PMI for the US and euro area: PMI data disappointed yesterday in both the US and Euro area pushing bond yields lower while supporting equities as expectations for further hikes from the Fed and ECB were scaled back. In the US Composite PMI dropped to 50.4 in August from 52.0 in July with declines in both manufacturing and services. The European PMI figures also came out much weaker than expected with services showing renewed signs of slowing. The German Services PMI numbers stood out with a massive 5 index points decline, which has only happened three times before with the latest being in March 2020 during the Covid-19 lockdown.
Chinese markets calm down: In China financial stress has calmed somewhat for now as equities has rebounded around 3% from the low reached on Tuesday. It is supported by improving global risk sentiment and strong tech performance as tech companies deliver decent earnings and a stronger outlook, while having very low valuations after the past years’ violent sell-off. With selling pressure easing bottom fishers have come back and drive the gains in stocks. However, the underlying problems in Chinese housing and the shadow banking system are still there and financial stress could come back if we get more bad news on this front. New home prices in July saw a bigger decline than in the past months and with the stress on China’s developers the downward pressure on new home prices could intensify as they aim to sell more homes to raise cash.
Nvidia beat expectations: Speaking of tech, the leader of AI chips, Nvidia, crushed already high expectations with better-than-expected Q2 earnings and stronger guidance than seen by analysts. Earnings have quadrupled over the past year as the company is at the centre of the new AI drive.
Prigozhin reported dead in plane crash: Head of the Russian Wagner Group Yevgeny Prigozhin died in a plane crash yesterday together with other leaders of the Wagner Group, see Reuters. His fate was increasingly uncertain after he staged a mutiny earlier this year and his death leaves open what the future of the Wagner Group will be.
BRICS set to expand amid disagreements: BRICS leaders meeting in South Africa are struggling to finalise criteria for admitting new members into the club amid disagreements on how high the bar should be. While China seems to work on a wider expansion, India has supposedly in last minute suggested a GDP per capita criteria, which may exclude some potential members. The BRICS stated goal is to champion the interests of the Global South while several of the members have stressed it is not an organisation to oppose G7.
Equities: Global equities rose yesterday, and the non-top-down driven market ended. PMIs the triggered the lift to equities, not as one would expect in 19 out of 20 times because of strong PMIs but instead because of weak PMIs. The weak PMI’s resulting in yields plummeting across the curve and across countries. Hence, the fear of too high inflation and central overtightening fell and triggered the equity rally. As expected, materials and energy underperforming in this this inflations-relief rally. In US +0.5%, S&P 500 +1.1%, Nasdaq +1.6% and Russell 2000 +1.0%. Asian market continuing higher this morning and the same is the case for European and US futures. Market optimism fuelled by the Nvidia earnings report out after the US close yesterday.
FI: European bonds rallied on yesterday’s weak PMI data, with the 10Y German government bond yield declining by close to 13bp throughout the day and the EUR swap curve (2s10s) reinverting a few bps. The ECB pricing was much impacted by the weak signals. Markets are now pricing in a 3% probability of a 25bp hike at the September meeting (vs. 55% prior to the PMIs), while the peak deposit rate is trading 7bp lower at 3.90%. The 5y5y EUR inflation swap rate declined by 3bp to 2.60% during the session, which is, though, still close to the highest level recorded since 2009.
FX: EUR/USD seesawed through yesterday’s session taking its cue from PMI figures from first the Euro Area and then the US. In the end, the cross closed slightly higher on the day. The GBP weakened on the back of signs of deteriorating growth momentum, and after a couple of weeks’ strong GBP performance we decided yesterday to close our tactical short of GBP/CHF.
Credit: Credit indices continued to perform yesterday where iTraxx Xover tightened more than 10bp and Main 2.3bp. Primary market activity remains relatively low, but a few transactions were priced, including German auto parts manufacturer, Continental.
Nordic macro
This morning Statistics Sweden (SCB) releases Q2 construction data where the focus is mainly on dwellings starts, vendor Byggfakta’s indicator suggest a bottoming out of starts in Q2. In addition, SCB releases the Q2 Savings Barometer which is a preliminary estimate of household savings and balance sheets later published in Financial Accounts.
