Market movers today
- From the US, we will get University of Michigan’s preliminary Consumer Sentiment survey for November, which includes the US consumer’s inflation expectations. Both short and long-term estimates have risen, but so far consumers have seen most of the current inflationary pressures as transitory. September JOLTS labor market survey will also be released, which will provide further insight into how the ongoing labor shortages have developed.
- From the Euro Area, September’s Industrial Production is due for release.
- On the central bank front, ECB’s Lane and Fed’s Williams will be on the wires.
The 60 second overview
Global environment: Markets are still digesting Wednesday’s significant inflation surprise in the US. With the US market having been out for Veteran’s Day yesterday a key focus will be on treasury markets today as we head into the weekly close. Increasingly it seems that the narrative of global inflation only temporarily being higher is fading and we have already seen several central banks move monetary tightening forward in time whilst lowering growth projections. In our view, a key risk for 2022 is considerably faster monetary tightening – especially in the US – which by extension leaves downside risk to consensus growth expectations.
Global COVID-19 update: The big focus is still on rising new cases in the Northern Hemisphere. In the US, new cases are no longer declining and we expect a new wave over the winter. In Europe, the situation is getting worse with e.g. German new cases sky-rocketing to record-high levels. The Netherlands, Ireland, Belgium, Austria, Poland, Hungary and Czech Republic are also hit hard at the moment. New cases are rising in France, Italy and Spain but are overall still low. Looking at the Nordics, new cases are also climbing, especially in Denmark although deaths at this stage remain very low. New cases are coming down again in the UK and it seems like the booster effort has helped.
We think the next 3-6M will be challenging in Europe and in the US and we expect many countries will re-introduce (or tighten) some of the soft measures such as face mask requirements and COVID-19 green pass. We still think the bar for new lockdowns is higher this year due to the vaccine roll-out but countries with low vaccine uptake may be forced to implement tougher measures. Also, we expect a weaker relationship between new cases and hospitalisations/deaths, especially in countries with high vaccine uptakes, but if the waves get bigger than last year (due to a combination of fewer restrictions and a more transmissible variant), hospitalisations may still increase to the same levels as last year.
Equities: Yesterday was a fairly quiet but positive day for stocks with notably no signals from the US Treasury market due to the above mentioned holiday. On top of this, the data calendar provided little for markets to trade on and the earnings season is no longer a driver. Materials stood out as the winner yesterday as Evergrande once again, avoided a default, industrial metals improved and EM optimism increase. In US Dow -0.4%, S&P 500 +0.1%, Nasdaq +0.5% and Russell 2000 +0.8%. This morning we are witnessing some EM optimism with Alibaba reporting a record in Singles Day sales. Property developers are in red again and hence Hang Seng is underperforming. Futures in US and Europe are slightly higher.
FI: Small rise in yields of 1-2bp on most of the curve with the 2Y yields almost unchanged. Bund ASW spread continued to widen: nearly 2bp at yesterday’s session and are now at the highest level since summer of 2019 (except from the March’20 spike).
FX: Broad USD continued to rally yesterday. EUR/USD fell to 1.1450, USD/JPY held steady above 114 and USD/NOK and USD/SEK trade around 8.70 level.
Credit: Both CDS indices and cash bonds closed slightly tighter yesterday. iTraxx Xover tightened 0.3bp and Main 0.2bp. HY bonds tightened 1bp and IG 0.5bp.
