Market movers today
- Today is a busy day with plenty of releases. In the majors, markets will particularly be looking out for inflation figures in the euro area and the US. National releases yesterday point towards further price acceleration in the euro area in October.
- We also get flash GDP figures in the euro area. They will likely reflect that the service sector was not completely up and running in Q2 and thus, Q3 growth will remain on the high side.
- In Norway, we expect another drop in the unemployment rate, see more below.
- This morning, we published a note highlighting EM vulnerabilities to the ongoing energy crisis. As energy prices keep increasing and metal prices remain elevated, many EM importers in Europe and Asia will be hit. With rate hikes approaching in the US and a still fragile economic recovery, rising imports bill will further undermine the already weak external positions of e.g. Turkey, India and Egypt, adding pressure on FX. While exporters benefit for now, in longer term, transition to clean energy technologies implies changing fortunes, bringing opportunities for net fuel importers and metal exporters.
The 60 second overview
ECB: The ECB meeting yesterday ended with no new decisions or a signal about the decisions that are to be taken at the December meeting, as widely expected. Lagarde personally expected PEPP to end in March 22. TLTRO would be part of the December discussion.
US: GDP in Q3 disappointed consensus expectations by only growing 2.0% q/q ann. Growth has dropped back to more moderate levels after the economy expanded 6.7% q/q ann. In Q2.
President Joe Biden yesterday presented a revamped spending bill of USD1.75tn scaled down from USD3.5tn in a push to get a majority behind his spending plans and his infrastructure bill.
Equities: Equities were higher yesterday lifted by US were both S&P 500 and Nasdaq posted new record highs. Gains in US stocks very broad based while defensive ex. Energy outperformed in Europe. Small caps in strong comeback yesterday despite growth continued to outperform value. In US, Dow +0.7%, S&P 500 +1.0%, Nasdaq +1.4% and Russell 2000 +2.2%. The positive sentiment from Wall Street has not continued to Asia this morning were indices are lower including Hong Kong.
US futures are lower this morning, especially the Nasdaq index in dragged lower after heavy weight companies Apple and Amazon announced disappointing earnings results.
FI: A violent day in bond markets is probably the best description of yesterday’s price action that essentially had three parts. 1) Initially the BoE and RBA decisions and comments overnight sent shockwaves triggering a massive repricing of the front end by 10bp, but also a 10s30s relentless flattening of 8bp to just hit 7bp driven by the long end. 2) Ahead of the ECB meeting, some recovering from the strong reaction materialised, however, 3) the ECB’s decision not to push back on the market pricing sent front end pricing higher amid ECB didn’t convince markets of its transitory inflation narrative. ECB are now priced for a 10bp rate hike in September next year, well ahead of our expectations. Bloomberg sources later reported that Lagarde’s mild pushback on rates reflected a governing council agreement.
FX: Initially, markets had a hard time interpreting the ECB, but eventually EUR/USD moved higher in line with higher European rates. EUR/USD is now trading closer to 1.17, although we expect the move higher to be temporary in nature. EUR/GBP also moved higher and is now trading closer to 0.85. EUR/SEK did not react much to the ECB meeting but moved below 9.95 during the evening.
Credit: Though equities finished the day in red, credit markets were less upbeat. iTraxx Xover widened 3.3bp and closed in 258bp while Main widened 1bp and closed in 50bp. HY bonds closed the day 4bp wider and IG 0.5bp.
Nordic macro
In Norway, the decline in unemployment has slowed as the recovery effect has faded. Based on the weekly figures, we expect registered unemployment to drop to 2.4% seasonally adjusted in October, and 2.2 % non-seasonally adjusted. With the number of jobless still abnormally high, and vacancies also high, it would be alarming if unemployment were to start levelling off already.
