In focus today
In the US, we receive JOLTs labour turnover, which is a key measure of labour demand for the Fed. The October consumer confidence survey is also due for release.
In Sweden, at 08:00 CET, the GDP indicator for Q3 is released. The first two quarters presented a mixed growth picture; the Q1 growth of 0.8% q/q was followed by a contraction of 0.3% in Q2. We expect growth of 0.5% q/q driven by net exports and private consumption. Riksbank’s quarterly business survey is also due and it will be interesting to see whether Swedish businesses have seen any improvements yet. Both releases will carry weight for the Riksbank in their upcoming rate decision on 7 November.
In Australia we receive CPI; consensus expects a decline of 0.9 percentage points from 3.8% to 2.9%
Economic and market news
What happened yesterday
In euro area, commenting on the speculation of an ECB jumbo cut, ECB policymaker Pierre Wunsch (hawk) stated that due to an improved economic landscape that there is no urgency to accelerate the easing of monetary policy. Instead, the market should wait for upcoming releases of inflation and results of the US election which will affect ECB’s rate decision. Markets currently price in around 20% probability of a 50bp cut.
Equities: Global equities were higher yesterday, adopting a wait-and-see approach ahead of the very busy period that kicks off today with numerous earnings reports and the first batch of job data from the US. The big loser yesterday was the energy sector, following a 6% decrease in oil prices. To illustrate the non-macro-driven performance yesterday, we saw tech underperforming alongside energy, while small caps experienced a relatively solid day despite rising yields. We have mentioned this previously, but it may be worth highlighting again. With several multifactorial, eventful days ahead, we are likely to witness days marked by special cross-asset moves and rotations. Hence, it is prudent to remain somewhat humble over the next couple of weeks when attempting to discern the causalities in fundamentals and markets. In the US yesterday: Dow +0.7%, S&P 500 +0.3%, Nasdaq +0.3%, Russell 2000 +1.6%. Asian markets are presenting a mixed picture this morning, with Japan experiencing another day of strong equities and a weaker yen. European and US futures are marginally higher.
FI: The decoupling of USD and EUR rates continued through yesterday’s session as implied probabilities of a ‘Republican Sweep’ gained further traction through the weekend. 2Y UST yields rose 3bp throughout the session, while the comparable Schatz yield was down a couple of basis points. The recent repricing has left the SOFR terminal rate at an elevated level of 3.5%, which is about 0.5 percentage point above the median FOMC longer-term projection. In our view, this gives a significant downside for USD rates in the case of a Harris win next week. In terms of implied volatility, the MOVE index is at its highest levels since mid-2023.
FX: EUR/USD stayed around 1.08 in a quiet start to the week, with data on the US labour market in focus, starting with the JOLTS job openings today. Political uncertainty in Japan has further contributed to the USD/JPY rise over the past month. Our tactical recommendation to go short on AUD/USD spot reached its target level of 0.66 yesterday, resulting in a booked profit of 4.4%, including carry. EUR/SEK and EUR/NOK both edged higher, hovering around 11.50 and 11.90, respectively. Oil prices dropped yesterday to their lowest in about a month as investors priced out the geopolitical premium following Israel’s targeted retaliatory strike on Iran.
