Market movers today
- We start the week in a fairly quiet fashion on scheduled global data releases. However, in the Nordics focus will start out with Swedish October inflation and Danish Q3 GDP both to be released this morning. For details see the Nordic Macro Section below.
- US President Joe Biden and Chinese President Xi Jinping are scheduled to hold a virtual summit later today which will always get attention from a global diplomacy perspective.
- Later this week, markets will keep a close eye on US retail sales (Tuesday), the UK labour market report (Tuesday) and also a range of Fed speakers for any hints on the monetary policy outlook. Also markets will follow global COVID-19 data and possible new restrictions being put in place (see below).
- Finally, we should soon expect an announcement of whether Jerome Powell is re-nominated as Fed chair.
The 60 second overview
COVID-19 restrictions: On the back of rising contaminations the Netherlands has entered a three-week partial lockdown forcing bars, restaurants and supermarkets to close at 20.00 and non-essential stores to close at 18.00. Also spectators will be banned from sporting events and people are being urged to work from home. This illustrates the rising risk of new lock-down measures being put in place in developed countries. Also Austria and Germany are contemplating tougher measures.
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 like face mask requirements and COVID-19 green pass. We still think the bar for new lockdowns in most countries is higher this year due to the vaccine roll-out but countries with low vaccine uptake may be forced to implement tougher measures. We still expect a weaker relationship between new cases and hospitalisations/deaths, especially in countries with high vaccine uptakes.
COP26: Over the weekend more than 200 nations agreed on a climate agreement coined the Glasgow Climate Pact. The agreement included several measures to fight climate change which among other things included the first explicit intention to reduce the use of coal (to be “phased-down”) and a framework for a global carbon market. According to experts the agreement keeps hopes alive that the Paris Agreement’s 1.5 degree Celsius goal is still achievable. Meanwhile, critics say the agreement was not ambitious enough and that the really tough decisions have merely been pushed out in time.
China: Overnight data out of China revealed both retail sales and industrial production beating market expectations. This comes after a string of worse-than-expected figures and does give some investor relief. That said, also this morning we got fixed asset and property investment data which still highlighted how not least the Chinese market for property development will continue to be followed closely. Prior to the releases The People’s Bank of China has rolled over its medium term lending facility thereby injecting CNY 1tn into the bank system.
Japan: National Account figures this morning showed a larger-than-expected setback in Japanese activity in Q3. That still leaves Japan as one of the biggest losers from the COVID-19 crisis with the country posting one of the largest GDP gaps to both pre COVID-19 levels and not least trend as illustrated by this twitter-chart.
Equities: As anticipated in our September strategy, sector- and style performance have turned more directionless. Last week we saw both defensives/cyclicals and growth/value among winners- and losers. On Friday, preference reversed for the week, with growth names generally outperforming. Communication services and tech were among the leaders, while value defensives such as energy, utilities and consumer staples lagged. Asian markets are mixed this morning, despite strong Chinese macro numbers. US futures slightly higher.
FI: It was a very volatile week for the global bond market as shown by the 10Y US Treasury yield, which has been trading between 1.43% and 1.56%. The real yield has again been touching the 5Y low of -1.20%. Hence, real yields continue to trade at very expensive levels on the back of the higher than expected US inflation numbers.
FX: The end to last week’s session was generally characterised by modest USD gains and reflation-sensitive currencies in RUB, HUF, PLN, SEK and NOK posting decent losses. Both EUR/USD and EUR/GBP moved somewhat lower.
Credit: There were only small moves in credit on Friday. iTraxx Xover widened 0.7bp, closing in 248bp, and Main unchanged in 48.7bp. HY bonds tightened 0.7bp and IG was unchanged.
Nordic macro
Swedish inflation numbers for the month of October will be released at 09.30 CET today. We expect CPIF and CPIF ex energy to print spot on respectively 0.2 percentage points below the Riksbank’s forecasts, with CPIF unchanged on the month and ex energy 0.2% higher m/m. Electricity prices have come down during October and we expect this to drag down headline, whereas fuel is expected to pull in the opposite direction. We also expect food prices to increase slightly on the month. The big joker lies within transportation services, where we saw higher than expected numbers from both Norway and Denmark last week. However, there are no signs of significantly higher foreign airline ticket prices. Additionally, as the autumn break spilled over into November, it is hard to pinpoint which month will actually be hit.
In Denmark, we get the GDP indicator for Q3. The Danish economy maintained its momentum in Q3 and we expect that the GDP indicator will show growth of 0.7%. Industry has looked strong, and the service economy has experienced a powerful tailwind in the wake of the reopening, which has also created a record number of jobs.
