In focus today
Today will be light on the data front, with the German ZEW indicator for November only. It will be interesting to see if the improvement in expectations recorded in October continued in November.
Economic and market news
What happened overnight
In Sweden, the Public Employment Service (PES) released their latest unemployment statistics at 06:30 CET which showed an increase in the unemployment rate to 6.9%. According to PES’s figures, the unemployment rate has been increasing for the past year, but the pace of said increase is less dramatic than what is implied by the often officially quoted figures from LFS. Still, the PES press release note that the labour market is clearly weak.
What happened yesterday
In Denmark, inflation increased to 1.6% y/y in October from 1.3% y/y in September, with higher electricity prices in particular driving the uptick. While inflation increased slightly, underlying price pressure remains modest, with the substantial wage growth not acting as an inflationary force in Denmark.
In Norway, October core inflation dropped to 2.7% y/y (cons: 2.7%), while the monthly figure fell to 0.2% m/m (cons: 0.3%). Details reveal a broad-based fall with lower price pressure in all main components apart from clothing/shoes – albeit much of it is base effects. Heading into this print it was widely expected that inflation once again would undershoot Norges Bank’s projections at 2.9% y/y (September monetary policy report). That said, at this point, markets have widely understood Norges Bank’s revealed preferences for waiting until March 2025 before delivering the first rate cut – also reiterated at last week’s interim meeting last week. Given their preferences, the bar for a December cut has seemed high for some time, and we would likely have to see the real economy, particularly capacity utilisation, turn over sharply before a cut could come back into play. Hence, yesterday’s print changed nothing in that regard.
In China, the credit data came in yesterday, showing a moderate improvement in October, but data remains soft in general. At the same time, money supply growth also rebounded (M1 from -7.4% y/y to -6.1% y/y, M2 from 6.8% y/y to 7.5% y/y), though coming from weak levels. With the stimulus taking hold, we project credit growth to pick up in the coming quarters. The big uncertainty now, however, is when and how much the impact will be of Trump’s expected tariffs hikes on Chinese products – and the tit-for-tat trade war that may follow.
In Japan, the Lower House convened on Monday to select a new prime minister. As expected, the LDP retained power, re-electing PM Ishiba despite his scandal-hit coalition losing its parliamentary majority in last month’s election. We will keep an eye on what the DPP’s (whose support is critical to Ishiba) opposition to rate hikes might mean to the government’s stance on monetary policy.
In commodities space, Oil prices were down almost 3% in yesterday’s session amid China’s stimulus plan disappointing investors hoping for stronger Chinese demand growth, a stronger USD and expectations of increased supply due to Trunp’s pro-drilling stance. Later today, OPEC publishes its Monthly Oil Market Report, which includes major issues affecting the oil market and an outlook for oil market developments for the year to come.
In crypto space, Bitcoin continued its journey north. As of this morning, the world’s biggest crypto currency is hovering around USD 88,600.
Equities: Global equities were higher yesterday; however, it is worth highlighting the calmness in the markets and the massive drop we have seen in implied volatility measures such as the VIX and Move indices. Yesterday was also devoid of significant fundamental events, with no important key economic figures or monetary policy developments. Therefore, it was a day when investors had the opportunity to reflect thoroughly following the immediate reaction to the US election. The largest disturbance was the US Veterans Day holiday, which meant that there was no trading of treasuries. In terms of sector rotation, we observed precisely what we anticipated, with cyclicals performing exceptionally well, led by financials, consumer discretionary, and industrials. That being said, one should not expect Tesla’s post-election frenzy to continue. We even argue that there is a risk of it backfiring if Trump initiates a tariff war against Europe and Europe begins to retaliate. Materials underperformed, which we attribute to the disappointing messages emanating from China. Style-wise, small caps performed excellently yesterday, particularly in the US.
In the US yesterday: Dow +0.7%, S&P 500 +0.1%, Nasdaq +0.1%, Russell 2000 +1.5%.
Markets in Asia are lower this morning. China H-shares, along with Taiwan, are experiencing declines. The two major drivers here are the post-US election effects and the disappointing Chinese stimulus measures. In Taiwan, TSM, accounting for more than one-third of the main index, is leading the index lower after reportedly being ordered by the US to stop shipping chips used for AI to Chinese customers. Futures in Europe and the US are also lower this morning, with the Euro Stoxx 50 down by almost 1%.
FI: Yesterday, European government bond yields declined and extended the rally from Friday. 10Y German government bond yields have declined almost 20bp from the peak last week and are back below levels before the US election. The US bond market was closed yesterday, but we have seen a modest rise in US yields this morning in Asian Trade after a solid decline last week, where 10Y US Treasuries fell some 13bp on Thursday and Friday. Furthermore, after a long period with curve steepening the curves are flattening once again.
FX: Limited activity after the European close due to US holiday (Veteran’s Day), but EUR/USD held on to the move below 1.07 from earlier in the session. The EUR was one of yesterday’s biggest losers, not only vs USD but also against Scandies. The Brent oil price fell close to 3% but NOK/SEK barely moved, currently trading just above 0.98.
