Market movers today
Euro area unemployment figures for august are released. The labour market has been surprisingly strong this year despite the monetary policy tightening and cooling economy. In July, the unemployment rate remained at the historical low of 6.4%. We expect to see a slow and muted rise in the unemployment rate going forward in line with the signals from the PMI employment figures.
ISM for manufacturing for September is released in the US. We already have the Flash S&P PMI which showed a slight improvement compared to August, and we will also get the final version of that measure today.
In Sweden the Riksbank releases minutes from its recent policy meeting, see more below.
Vice chairman Michael Barr from the Fed speaks about monetary policy and financial stability 19.00 CET.
The Reserve Bank of Australia will announce its rate decision 5.30 CET on Tuesday, we expect no rate change.
For the remainder of the week, the most important market mover will be the US jobs report released on Friday.
The 60 second overview
US: On Saturday, Congress approved a plan to keep the federal government open until mid-November, avoiding a shutdown for now just hours before the midnight deadline, see New York Times.
Inflation: Friday brought some uplifting inflation news to the ECB with a large decline in euro area core inflation to 4.5% in September from 5.3% in August. A big chunk of it can be explained by the German 9-euro ticket exiting the inflation measure. However, zooming in on MoM price pressures, price pressures actually appear to have subsided in September. European bond yields also traded a few basis points lower in the afternoon session on Friday. In the US, PCE data confirmed that US core inflation pressures have cooled down with PCE core at just 0.1% m/m in August.
Japan: The Tankan business survey for Q3 was even stronger than expected with big non-manufacturers’ mood at the highest level since the early 90’s. The big manufacturers’ index rose from 5 to 9, also beating expectations. Businesses spending plans remain robust and 3 and 5 year inflation expectations were unchanged at a level above 2%. The strong business mood will be key for the potential for a higher wage pressure in the economy next year, a prerequisite for Bank of Japan normalising its policies. This morning a summary of opinions from the BoJ’s September meeting revealed that more policymakers discussed the prospects of an eventual exit from ultra-loose policy. One member said the second half of the current fiscal year, ending in March 2024, will be an “important period” in determining whether the BoJ’s price target will be achieved. We expect another tweak to the yield curve control this year ahead of further normalisation next year.
China: The Caixin PMI decreased to 50.6 in September from 51 in August, less than expected. Even so, it confirms the picture painted by the official PMIs released on Sunday, which edged above 50 for the first time in six months, that the economy is bottoming out.
Equities: Equities lost steam in the last hours of trading on Friday. Softer US core PCE inflation, another batch of favourable inflation developments overseas or a strong earnings report was not enough to maintain the risk appetite. Europe rose 0.4% while S&P 500 was -0.3% lower. This resulted in Europe and Nordics unchanged for the week and US a percent lower. Although it may not have felt like it, it has not been all blue: The sell-off has mostly taken place in defensives, small caps have beat large caps and growth has even given value some revenge. US futures are a notch higher this morning and Asia is higher, although China is closed for holiday.
FI: The republicans and democrats have avoided a government shutdown in the US, but the deal on the budget lasts only until mid-November and the uncertainty can resume again. The risk of a government shutdown can put US monetary policy on hold even inflation does not decline as expected. Thus, the outlook for US Treasury yields is uncertain as there is a risk of a downgrade from Moody’s in case of a shutdown.
FX: Last week was characterised by SEK strength amid the Riksbank (likely) having initiated its FX reserve hedging program (SEK buying). This has brought EUR/SEK down to the 11.55 level – the lowest level since July. Also, NOK had a good end to July with EUR/NOK falling to 11.30. EUR/USD continues to trend lower with the cross – despite a slight uptick Thursday – still finishing the week below 1.06. Finally, USD/JPY is approaching the 150 level amid the rise in global yields.
Credit: Credit markets saw the second consecutive day of improving sentiment, with iTraxx Xover tightening 2.5bp and Main closing 0.3bp tighter. Cash bonds saw more mixed performance and IG bonds tightened 2bp while HY bonds widened 3bp.
Nordic macro
Riksbank minutes published at 09:30 CET. We will look for board members’ views on the probability of another rate hike and any thoughts on how long rates need to remain on high/restrictive levels. Interesting to hear the reasoning on the SEK and inflation outcomes, as in the latest minutes there was a lot of focus on the too elevated service inflation. September manufacturing PMI is out. Both NIER manufacturing confidence and the German flash PMI were higher in September, hence, the stage looks set for a slight rebound.
