Market movers today
- The German ZEW index will give us the first glimpse into November’s economic growth momentum, consensus is looking for a further decline given that the ongoing supply shortages continue to weigh on German activity.
- US Producer Prices for October will be released in the evening, and Chinese inflation data will follow overnight, consensus looks for a slight uptick in both figures.
- Plenty of central bankers also on the wires today, including Fed’s Powell and Clarida as well as ECB’s Lagarde and Lane.
- China’s sixth plenum of the Central Committee opened yesterday and will last until Thursday. Look out for any policy signals coming out of the sessions.
The 60 second overview
Biden interviews Brainard for top job at the Fed: US president Joe Biden interviewed Lael Brainard for the job as Fed chairman last week, according to sources. The term of current Fed chairman Jerome Powell expires in February and Brainard is the main contestant for the job. Brainard is also under consideration for the job as vice-chair for supervision. Yesterday, Fed governor Randal Quarles announced he would step down by the end of the year leaving another seat open for Biden to fill at the Fed.
The Fed warns about Chinese property sector: In its semi-annual Financial Stability Report, the Fed warned that stresses in the Chinese real estate sector poses some risk to the US financial system. “Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States,”.
China property crisis: Strains in the Chinese property markets have continued to worsen over the past month with stress spreading to investment grade bonds while the Chinese off-shore USD high-yield index today reached a new record high of 23.5%.
Taiwan: The defence ministry of Taiwan said in a report that China’s armed forces are capable of blockading Taiwan’s key harbours and airports, calling it a “grave military threat”. The report is issued every two years.
Equities: A very quiet day yesterday resulted in modest gains driven by US and mostly cyclical companies. Some few travel stocks perform on the back of US opening up for international travel. Despite the positive tone, VIX made its third consecutive move higher. Also worth noting, a huge amount of contracts being written in options space. In the US, Dow +0.3%, S&P 500 +0.1%, Nasdaq +0.1%, Russell 2000 +0.2%. Asian stocks started in green this morning but have lost momentum and are trading lower driven by Japanese stocks. European and US future are down this morning.
FI: A fairly uneventful session following on the back of the very interesting and volatile past two weeks of central bank action and challenged communication. Curves bear steepened after the repricing towards the end of last week. The interview and speech from Lane repeated the transitory inflation narrative while highlighting that the medium-term inflation was still too low and that ECB must be patient in its approach to monetary policy. Spreads tightened marginally.
FX: NZD, NOK and GBP gained vis-à-vis USD, SEK and CHF yesterday, where several Fed speakers gave hints about the monetary policy outlook, but failed to move the market. EUR/USD rose slightly towards 1.1600 and thus remained in its range.
Credit: Credit markets remained positive yesterday with iTraxx Xover tightening a further almost 4bp and Main approximately 0.5bp. HY bonds tightened 6bp and IG 1.5bp.
Nordic macro
In Sweden, the Riksbank buys SEK 2bn munis in 2023-2026 maturities today. Statistics Sweden releases September PVI (production value index) and the consumption indicator. These are hardly any market movers, but will instead provide some colour to economic developments, i.e. to what extent supply disruptions linger on in the manufacturing industry and the degree of lift-off in services consumption on the back of abolished Covid restrictions in early September.
