Market movers today
Today will be the most exciting day of the week on the macro front.
On the global front we get preliminary Euro zone PMIs for November. We look for a rise in manufacturing PMI as several indicators have improved lately. Last week the German ZEW moved higher and it tends to give a good signal for Ifo and PMI. We have also seen Asian exports improve for some months, normally a sign the global manufacturing cycle is turning. However, the service PMI is even more important at this stage as the majority of jobs are in this sector. The PMI has fallen a lot over the past quarter.
We might receive the ECB’s Q3 negotiated wage indicator today or tomorrow. The ECB does not publish the release date but the previous data releases have been between the 23rd and 25th in the second month following the quarter in question. We expect the indicator to show a slight increase in wage growth compared to the last quarter at 4.5% y/y. The latest agreements point to upside risks while high frequency trackers point to lower wage growth.
In Scandi, it is time for Riksbank meeting where we look for a “hawkish hold”, see more below. Norway releases GDP for Q3.
The 60 second overview
UK fiscal policy: Yesterday, UK chancellor Jeremy Hunt presented the Autumn Statement, which was accompanied by a report by the OBR, the independent fiscal watchdog in the UK. The statement was overall in line with expectations with measures such as an increase in the national living wage, making full capex expending permanent, cut to national insurance, freeze alcohol duty for a limited period of time were presented. However, the cut to national insurance was larger than expected at 2%-points from 12% to 10% and is expected to affect 27m people. Additionally it is already set to come into effect from January 2024 instead of the usual spring 2024 with the new fiscal year. Markets reacted accordingly, sending rates higher given the possible inflationary nature of the measures. Combined with increase in National Living Wage this is set to put upward pressure on wage growth, a key input factor to service inflation, which is currently significantly above the long run average and a key concern for the BoE. In the broad picture however we see the effects on inflation as negligible but emphasise the upside risk to consumption in the near-term. Overall, we do not expect further hikes from the BoE and expect the first cut in June 2024.
Dutch election: According to an exit poll, the Dutch election did not go as expected. Far-right Gert Wilders’ Freedom Party (PVV) supposedly got 35 out of 150 seats, 10 seats more than former EU Commissioner Frans Timmermans’ Labour/Green Left combination. The conservative VVD, was in third place at 24 seats. Wilders is expected to try to form a right-wing government with the VVD and the new party ‘New Social Contract’, who together would hold a 79-seat majority. It could prove difficult though, due to Wilders’ outspoken anti-Islam stance. Wilders is explicitly anti-EU, urging the Netherlands to control borders, to significantly reduce its payments to the EU and to block the entrance of any new members.
Equities: Global equities returned to positive yesterday driven by upbeat sentiment in the US. Please note, this was not just about 7 stocks and a bad excuse for underperformance. Both NVDA and TSLA where lower by more than 2% yesterday and we still saw a lift to all major indices. As vol is coming down, equity and importantly also bond vol, it supports all stocks, and we see a lift across sectors and styles. VIX yesterday broke down below 13, which is low in a full business cycle perspective but a typical late cycle phenomenon. In US yesterday, Dow +0.5%, S&P 500 +0.4%, Nasdaq +0.5% and Russell 2000 +0.7%. Markets in Asia are mixed this morning with optimism outside China while Chinese indices are struggling. US and European futures are roughly unchanged.
FI: EGB yields ended marginally higher yesterday, though intraday volatility remains elevated. The Bund curve flattened 4-5bp from the front as hawkish US data was released in the afternoon. Peripheral spreads widened a bit with the German ASW-spread. UST yields closed the session up 2-3 across the curve, while the Gilt curve rose 5bp following the higher than expected planned issuance next year announced yesterday by the UK DMO. Long-term inflation swap rates traded stable despite the high volatility in oil prices due to issues on building consensus for further production cuts within OPEC.
FX: EUR/USD declined significantly below 1.09, reaching a three-day low, driven by a robust USD following the release of strong US economic data. GBP moderately weakened on the back of the Autumn Statement accompanied by a weaker growth forecast by the OBR. The setback to oil prices sent NOK on the back foot in yesterday’s session thereby putting a stop to the 3-day consecutive declines in EUR/NOK. Today, focus turns to Riksbank monetary policy with the decision at 9:30 CET where we expect an “unchanged” decision. For SEK, we see the outcome space as wide where a hawkish hold could prove slightly positive for the SEK, at least short term.
Credit: CDS indices were slightly tighter yesterday as iTraxx Main closed at 68bp (-1bp) and Xover at 377bp (-6bp). The primary market remained busy with several corporate deals (Vestas SLB, Coca Cola, Ericsson green bond, Imerys SLB) as well as further financial senior supply from Banco BPM and Credit Mutuel Arkea.
Nordic macro
Market pricing and analyst forecasts are split, close to 50/50, ahead of today’s monetary policy decision from the Riksbank. We expect the Riksbank to keep the policy rate unchanged at 4.0% while still keeping the door open for a rate hike later on, if inflationary pressures remain higher than forecast (signalling around 10bp in the rate path for February). In other words a “hawkish hold”. The main reasons behind this stance are: 1) both headline and core CPIF was around 0.1 percentage points higher than Riksbank’s forecasts in October and this is too small to justify a rate hike in our view. Moreover, calculations of frontloaded and momentum inflation suggest inflationary pressures are receding quickly now. 2) The Krona (KIX index) is almost 5 percent stronger than Riksbank’s forecast, at a level the Riksbank does not expect to see until Q2 2025. The implication of this deviation is that it adds to lower inflationary pressures than assumed in Riksbank’s forecasts. 3) Other central banks, most notably the ECB, have taken on a “hawkish hold” approach to the policy rate. 4) Riksbank’s own semi-annual business survey showed that household-related companies are signalling price cuts going forward on the back of easing labour and energy costs, weakening demand and increasing competition. 5) Recent Swedish macro data such as consumption, GDP and labour market data has weakened somewhat. We do not expect any news about the pace of QT, however, it is not possible to entirely rule out a step to speed up bond sales further. The decision and MPR released at 9.30 CET and a press conference with governor Thedéen (in Swedish) is scheduled for 11.00 CET.
We expect growth in mainland-GDP at +0.2 % q/q in Q3, but that the monthly figures will reveal a slowing trend pointing to a weak Q4.
 supposedly got 35 out of 150 seats, 10 seats more than former EU Commissioner Frans Timmermans' Labour/Green Left combination. The conservative VVD, was in third place at 24 seats. Wilders is expected to try to form a right-wing government with the VVD and the new party 'New Social Contract', who together would hold a 79-seat majority. It could prove difficult though, due to Wilders' outspoken anti-Islam stance. Wilders is explicitly anti-EU, urging the Netherlands to control borders, to significantly reduce its payments to the EU and to block the entrance of any new members.){kind=link}