Market movers today
- The key event today is the Riksbank meeting where we expect the Riksbank to put in a hiking bias at the very end of the repo path in Q4 2024 while keeping the balance sheet steady next year.
- Today we get German consumer confidence data in the morning and ECB minutes in the afternoon.
- Otherwise, expect thin trading as the US is on Thanksgiving holiday.
The 60 second overview
New German government found: Yesterday, the traffic light German coalition government with the SPD, Green and FDP was agreed. As expected SPD’s Scholz will take the Chancellor post. While the near-term challenge for the incoming government will be to contain the spreading of the Covid virus, the green and a ‘decade of investments’ is in focus in the agreement. The Liberal party’s Lindner (FDP) will take the finance ministry, which is important for markets. That said, the government programme is more focused on principles rather than rules, which will give leeway both domestically, but also in Europe, where the government is set to ‘develop the rules further’. SPD is also set to nominate the next Bundesbank President as Jens Weidmann will be stepping down by the end of the year.
Bias to faster US monetary policy normalisation: The minutes of the last Fed meeting did not reveal much news. A lot of discussions about inflation, where “some” participants preferred a somewhat faster pace of reductions than was agreed (perhaps tapering by USD20bn instead of the USD15bn), but we already know that more members are now moving in the direction of wanting a faster pace. Meanwhile, the core PCE inflation rate (Fed’s preferred inflation measure) increased to 4.1% in October, compared with 3.7% in September. In addition, long-term inflation measures (5-10 years) increased slightly to 3% in October.
Strong US macro data: Yesterday we got relatively strong US data. Initial jobless claims below 200.000 for the first time since the pandemic, while continued claims were marginally lower (still slightly above 2m). Real GDP growth in Q3 was revised marginally lower to 2.1%, although private consumption was marginally higher. Core capex orders in October were strong growing 0.6% m/m while September revised up to 1.3% from 0.8%). USD strengthened on the back of the numbers.
Equities: A roller-coaster ride yesterday as investors were challenged by the question of whether renewed macro acceleration will result in overheating and ultimately make monetary policy makers tighten earlier and faster. At the end of the day, the optimism took over and equities ended higher. In the US, stocks were lifted by tech and growth sectors while defensive led the markets in Europe. Dow -0.02%, S&P 500 +0.3%, Nasdaq +0.4% and Russell 2000 +0.2%. Asian markets are mostly higher this morning and the same goes for European and US futures.
FI: After the spike up in yields during the first two days of this week, movements yesterday were modest with 10Y Germany dropping 1bp during the session. However, the widening between Germany and other EU government bonds such as Italy continued.
FX: EUR/USD went briefly below 1.12 yesterday, pulled lower by strong US data and speculations of more restrictions across Europe. EUR/GBP is still trading plus/minus 0.84. Today’s Riksbank meeting is a potential market mover for EUR/SEK.
Credit: Credit markets continued to sell off yesterday with iTraxx Xover and Main 2.3bp and 0.6bp wider, respectively. HY bonds widened 4bp and IG almost 2bp.
Nordic macro
The event in Sweden today is the Riksbank policy announcement; what to expect? Firstly, we expect that the repo rate path will be extended by a quarter to Q4-2024 and that the Riksbank puts in a hiking bias at the far end of the forecast. A hiking bias earlier would be a hawkish sign. Secondly, news on QE: We believe that the message of keeping the balance sheet steady next year will be maintained, i.e. maturing assets will be re-invested. Still, this means an end to net QE. Finally, keep an eye on wordings regarding the inflation outlook. So far, the message has been similar to e.g. ECB; the current high inflation is driven mainly by energy and is likely to be transitory. We expect this to be the narrative this time around to but anything that sounds like higher uncertainty would probably trigger a market response.
In Denmark, the government plans to tighten corona restrictions further starting Monday, by requiring persons to wear face masks when travelling on public transport and shopping. However, according to our latest spending data, Danes did not cut back on restaurant spending last week despite the re-introduction of the need to show a negative test or vaccination certification when going to public places.
