Market movers today
- The most important data release of the day will be the US CPI for October, where consensus is looking for an uptick both in terms of headline and core inflation. The numbers are key to how patient the Fed can allow themselves to be in hiking interest rates. Norwegian inflation will also be released this morning.
- US Weekly Jobless Claims are also interesting given the focus on US labour supply. We have seen continuing claims falling over the past weeks after the extraordinary unemployment benefits ended early September. Consensus looks for a further decline.
- Chinese property developer Evergrande is facing another deadline on a big USD 148.5m interest payment today as the 30-day grace period of the payment expires.
The 60 second overview
Inflation: Chinese producer price inflation jumped more than expected to a 26-year high of 13.5% y/y (consensus 12.3%, previous 10.7% y/y). The rise in coal prices and power shutdowns raised energy costs in October pushing up prices. However, the shortage has eased following government measures and coal prices are down 50% from the peak. Hence, we should see some easing of inflation in coming months. CPI inflation moved up to 1.5% y/y from 0.7% y/y, still comfortably below the 3% inflation target.
Oil: The Brent oil price increased USD2 per barrel last night moving back above USD85 per barrel. The move higher came after a report from US Energy Information Administration (EIA) projecting that gasoline prices would fall over the coming months, which reduced the likelihood of the Biden administration releasing strategic oil reserves.
China property crisis: Another big developer was downgraded to junk yesterday as China’s 13th largest developer Shimao Group Holdings saw their rating cut. Rates on Chinese USD high-yield moved above 24% yesterday, a new record.
Biden-Xi meeting: US President Joe Biden and Chinese President Xi Jinping are scheduled to hold a virtual summit next week, according to sources familiar with the planning.
Equities: Global equities moved lower for a change as US stocks broke the long trend of moving higher. Defensive value stocks were outperforming while energy stocks also moved higher. The news flow is more and more focused on inflation. This should not change today as all eyes will turn to US CPI release at 14:30 CET.
In the US yesterday, Dow -0.3%, S&P 500 -0.4%, Nasdaq -0.6%) and, Russell 2000 -0.6%. It does not help overall performance or risk appetite to see a mega cap company such as Tesla loosing 12%(!). Asian market lower this morning with Hang Seng and a property developer once again leading markets lower (Fantasia down over 30% after resuming trade following a long halt). US and European futures in red across the board this morning.
FI: Yesterday, the global government bond markets rallied from the long end with a bullish flattening. 10Y Treasuries rallied some 6bp, while the 2Y segment on the US curve rallied 3bp. Real yields have also rallied strongly.
FX: JPY and CHF rose vis-à-vis AUD and NZD yesterday driven in part by a decline in long-term bond yields and commodity prices. USD/JPY has dropped below 113 again from over 114 last week. EUR/CHF holds steady below the 1.06 level.
Credit: After a period with solid performance, credit markets took a turn for the worse yesterday. CDS indices were most under pressure, with Xover and Main widening 4.8bp and 0.9bp, respectively. Cash bonds held up better and HY widened 1bp while IG closed unchanged.
Nordic macro
In Norway it is time for CPI. Inflation has slowed considerably since summer last year, driven by a stronger NOK and base effects. We believe that (core) inflation will now bottom out as both of these drivers fade or reverse. We nevertheless expect core inflation to drop from 1.2% to 1.0% y/y in October (consensus 1.2% y/y) due to the sharp rise in prices that month last year. The risk is increasingly to the upside, as the strong growth in commodity and energy prices and freight costs will probably push up consumer prices in Norway before long.
