Market movers today
The key market mover today will be the FOMC meeting tonight. We expect the Fed to stay on hold in line with consensus and market expectations, and look for no further hikes at a later stage either. As higher term premiums drive the tightening in financial conditions, Fed chair Powell could take a more cautious stance in his remarks. With markets fully priced for an unchanged rate decision and no updated economic projections, all eyes will be on Powell’s forward guidance. See Fed preview: Near-term bloom, long-term gloom?, 25 October. Notice that due to the shift to standard (winter) time, the rate decision tonight will be announced at 19:00 (CET) with Powell speaking at 19:30 (CET).
Ahead of the meeting we get both ISM manufacturing and the JOLTS report from the US. It will be particularly interesting to see the number of job openings after a surprising spike higher in September. It will also be worth keeping an eye on the ADP report, because markets often seem to ignore that it is not a very good indicator of where non-farm payrolls are headed.
In Sweden and Norway we will look out for PMI manufacturing data.
The 60 second overview
Europe: Eurozone inflation came in lower than expected in the preliminary data for October. Headline HICP fell 0.15% m/m on a seasonally adjusted basis, which translated into a decline in the annual inflation rate from 4.3% to 2.9% (consensus: 3.1%). Core inflation increased around 0.2% m/m for the second consecutive month, which is the lowest two-month average since the spring 2022. The disinflationary trend in the Eurozone continues, though ECB will still look for further signs of softening price pressures – especially in services, where the inflation rate rose to 0.27% m/m in October. Additionally, the first release of Q3 GDP data showed the Eurozone economy declining by 0.1% vs. +0.2% in Q2. The October PMIs indicate that the weakness has continued into Q4.
US: The Conference Board measure of US consumer confidence fell from 103 to 102.6 in October, which was slightly above consensus. The assessment of the current situation edged lower, while expectations remained subdued. The survey indicated a worsening in 6-month consumer expectations on employment, business conditions and income. The assessment of job availability (plentiful vs. not plentiful) continued to soften, though remaining high relative to the historical mean. In a separate release, the Employment Cost Index for Q3 rose 1.1% q/q (consensus 1%) with wages rising 1.2% vs. 1% in Q2. Wage growth is still well above the level consistent with the inflation target, underlining the strong labour market as the most important challenge for monetary policy to address.
China: Overnight, the Caixin manufacturing PMI for China fell from 50.6 to 49.5 in October (consensus: 50.8). This mirrors the move in the official gauge, which also fell back in contractionary territory earlier this week. The New Orders component remained weak with export orders falling for the fourth month in a row. Recent hard data for retail sales and industrial production has been better than expected, but the foundation for the economic recovery still seems fragile. Especially, as the housing crisis is still not resolved. Until it is, China will continue to rely on stimulus measures. On a separate note, the White House yesterday announced an upcoming meeting in November between Biden and Xi.
Equities: Equities were higher for a second day on Tuesday. No obvious drivers but for oversold conditions, yields volatility coming down and expectations for the Fed meeting tonight. S&P closed 0.7% higher and Stoxx 600 0.6%. It was an odd sector mix of real estate, banks and utilities outperforming. Again, illustrating that this was not a clear risk-on session but a rather defensive one. US futures are dipping into negative this morning.
FI: Long European bond yields ended slightly lower yesterday as Eurozone inflation came in below expectations. 10Y Bund yields was down close to 7bp in the morning, though the rally lost some steam following the release of strong ECI wage figures from the US in the afternoon. The 10Y UST yield ended the day marginally higher.
FX: Despite recovering risk sentiment (according to equities), yesterday was characterized by ‘safe-have’ strength within FX as USD, CHF and JPY (overnight) outperformed rest of G10. The Japanese ministry of finance is said to be “on standby” to intervene, which helped JPY to recover some lost ground over night. Scandies are still struggling, but the EUR/Scandie rallies seem to have stalled (for now) just above 11.80.
Credit: Credit markets benefitted from the betterment in overall risk sentiment, with iTraxx Xover tightening almost 15bp to 450bp and Main close to 3bp, thus closing in 85bp. Primary activity remained muted as issuers and investors were probably awaiting the release of the Eurozone CPI figures, which could provide a good window for issuers today.
