Market movers today
- In the US, consumer confidence from University of Michigan for September is released. The index nose-dived in August but the drop has not been seen in other consumer surveys so it seems likely it will rebound a bit. Also keep an eye on the inflation expectations index.
- In the euro area, final CPI numbers for August are released. They will bring more details on the sub components and hence what drove the sharp increase in core inflation to 1.6% y/y from 0.7% y/y.
- Markets will also keep an eye on the development in the problems for China’s second largest developer Evergrande and possible contagion to other markets.
The 60 second overview
US consumers: Retail sales ticked in strong yesterday with the control group (which excludes autos, gas and food services) at 2.5% m/m. Headline sales were not as strong, partly because there was no growth at all in “food services” (restaurants). Markets reacted by sending US yields higher to the levels from early this week and with broad USD strengthening.
Chinese real estate market: Trading of Evergrande bonds was halted and we see rising contagion to other big developers whose shares are diving. Home sales dropped 20% y/y in August following China’s tightening measures, which have added to the challenges for developers already feeling the heat from tighter regulation last year. So far there is limited spill-over to developed markets but it bears watching.
Equities: Equities lower yesterday although the European session was relatively strong and hence European stocks outperformed rest of the world yesterday. We have seen a lot of all-time highs the last 10 days and the risk appetite in equity markets has faded somewhat. This is well in line with what we expect for the rest of the year where some of the strong tailwinds equities have had the last 16 months are fading. No huge style and sector difference yesterday but consumer discretionary led on retailer and homebuilder strength while materials was the worst performer as industrial metals softened. In the US, equities were mostly lower, Dow -0.2%, S&P 500 -0.2%, Nasdaq +0.1% and Russell 2000 -0.1%. Markets are mixed in Asia this morning where the Evergrande story continues to unfold. European futures are 0.5% higher while US futures are only a notch higher.
FI: It was a rather mixed day in EGB markets yesterday with choppy trading. Stronger than expected US retail sales weighed on bonds, but was later reverted leaving core EGBs broadly unchanged on the day.
FX: We now like the risk-reward of selling NOK FX via options. AUD/USD declined yesterday driven largely by stronger broad USD. The PLN was one of the worst performing EM currencies yesterday amid general sour mood posed by USD strength.
Credit: Credit followed equities in green and iTraxx Xover tightened 1.7bp while IG tightened 0.2bp. Cash bonds followed suit, with HY bonds tightening 1.5bp and IG0.5bp.
