Market movers today
- Fed speakers: On an otherwise quiet day on the data front, markets will keep an eye on a range of Fed speakers and the weekly US unemployment claims.
- Norway: Norges Bank releases its quarterly expectations survey and we are particularly interested how wage expectations have evolved in Q4. The oil investment survey should also see a solid upward revision of expectations for next year.
- Sweden: Labour force survey for October.
The 60 second overview
Natural gas prices continue to attract a lot of focus after the German decision earlier this week to delay the approval of the Nordstream 2 pipeline. The Dutch benchmark future traded yesterday above 100 EUR a megawatt hour, up 20% in three days. That said, prices eased late in the session and ended at EUR 95 after Gazprom said it would set up a fully owned German subsidiary. The latter might satisfy German/EU regulation.
Oil prices also fell yesterday afternoon in line with natural gas prices, the stronger USD and as news agencies reported that President Biden and president Xi had discussed the release of strategic oil reserves earlier this week. Brent oil is at USD 80 a barrel at the lowest level since the beginning of October. Reuters overnight reported that the Biden administration has asked not only China but also other oil consuming nations such as India to release strategic oil reserves in a coordinated global move to bring down prices. The move comes after repeated requests to OPEC to increase production. News agencies also reported that China is in fact now working on a strategic oil release.
Lower break-evens. The move lower in especially oil prices weighed on inflation expectations and US 10Y breakeven yesterday fell some 5bp to 2.71% though still 40-50bp above the level that prevailed over the summer.
UK inflation jumped to 4.25 in October, which adds pressure on Bank of England (BoE) to raise rates next month. BoE’s Bailey has said that the BoE decision is tied to labour market developments. Hence, together with the stronger-than-anticipated employment growth data released on Tuesday yesterday’s higher-than-anticipated inflation means there is an increasing probability that the BoE will hike at the December meeting. That said, our base case has for a while been for a February hike, as it would allow the BoE to get more information on the state of the labour market.
Equities: After days of straight gains, US market slipped on Wednesday. Sector performance in a classic risk-off mode, with defensives (real estate, tech, health care) the only sectors gaining. Interestingly, autos were the standout, rising 3% on average. Unlike our overall defensive call, we took autos to an overweight in our last strategy report, on the back of the pent up production in 2022. S&P500 closed down -0.3%, Dow -0.6%, Nasdaq -0.3% and Russell 2000 -1.2%. Declines are following in Asia this morning, with Hang Seng worst hit on tech weakness. US futures however slightly higher this morning.
FI: No big yield drivers yesterday meaning that European government bond yields only saw minor changes with German 10Y yields being nearly unchanged and Italy/Spain/Portugal widening 0.5-1bp to Germany. However, some changes in UK short yields dropping 4.5bp and hence reducing the expectations of BoE hiking rates. German government bonds are still trading on the expensive side to EUR swaps and Bund ASW spread widened marginally after seeing high intra-day volatility.
FX: Yesterday’s session was primarily characterised by the drop in commodity prices, which we think highlighted the importance of the broader rise in USD on Tuesday. The drop unsurprisingly weighed on most commodity currencies with AUD, CAD and NOK being the underperformers in the European session. EUR/USD did little on the day while EUR/GBP continues to move lower.
Credit: Credit remains under pressure, with iTraxx Xover widening almost 2bp and Main 0.4bp.
Nordic macro
Norway: Today brings the Norwegian Q4 oil investment survey. We predict only minor changes to the estimate for this year, with it still showing a moderate decline from 2020. Although we expect the survey will now show a drop in oil investment of 5-6% in 2022, this would be in line with expectations.
We will also be keeping an eye on Norges Bank’s quarterly expectations survey. It does not normally attract much attention, but in the August edition there was a sharp rise in both wage and price expectations among the social partners, economists and business leaders alike. We are particularly interested to see how wage expectations move this time around.
Sweden: The Riksbank will today buy SEK 4bn covereds in 2023-2027 maturities. Statistics Sweden releases October LFS, and we are mainly interested in the development of hours worked as the number has been quite volatile over the past two months, possibly suggesting a slowing recovery. The October data will be decisive for the conclusion.
