Market movers today
- Today, markets will tune in on US data releases, in particular the jobs report. We expect around 500,000 new jobs were created in line with the consensus estimate of 550.000. More than that will increase the probability that the Fed will increase the tapering pace. Also worth keeping an eye on will be wage growth and whether people are returning to the jobs market, which will give new indications on what we can expect of inflation going forward.
- In the afternoon we also get US ISM non-manufacturing.
- In Scandi, we get new Norwegian unemployment figures, see further in the Nordic section below.
The 60 second overview
FX Top Trades: Today we released our FX Top Trades 2022 – Our guide on how to position for the year ahead in FX markets. Among the 9 top trades are short EUR/USD, short NOK vs USD and EUR, and long EUR/DKK.
Oil: Oil prices have climbed back from the initial plunge yesterday following the OPEC+ surprise decision to go ahead with the planned 400kb/d output increase in January. Brent oil trades above USD70 per barrel again similar to the level prior to the decision. Throughout the pandemic OPEC+ has applied a cautious approach to output management, but today it abandoned it as it expects demand will hold amid fears of the impact of the new omicron variant. Should the omicron variant have lasting negative effect on demand OPEC+ will likely reverse course and start holding back output again. After a week of negative news for the oil market, we see a potential for a near-term rebound back towards USD75/bbl.
Inflation: While wage pressures are rising, we start to see an easing pressure from lower commodity prices and tentative signs that bottle necks are easing. Weekly freight rates released yesterday showed a further decline further with rates from Shanghai to LA now down to the lowest level since July and 20% below the peak. The line of ships outside LA ports has also been cut in half over the past month indicating the pressure is easing. Similarly, supplier delivery indices in Asian PMI (where bottle necks have dominated) also improved in November. In combination with the recent drop in oil prices as well as some metal prices, it suggests that the worse may be behind us on inflation from these channels and it normally feeds into lower headline inflation in US and Europe with a lag of 3-6 months.
COVID-19: Yesterday Germany imposed new restrictions with those unvaccinated barred from restaurants, cinemas, and many shops. Vaccinations could be made mandatory from February according to the chancellor, see BBC. Europe continues to struggle with new waves. For more on Covid and Omicron, see our COVID-19 Update: Omicron – more (breakthrough) infections but milder? Still too early to make firm conclusions released yesterday.
Equities: The risk-off sentiment in Europe turned into a rebound session in the US. Cyclical value stocks led the way, with energy, industrials and banks among the best sectors, and defensives underperformed. S&P500 even reversed Wednesday’s pull-back, jumping 1.4%, Dow 1.8%, Nasdaq 0.8% and Russell 2000 2.7%. VIX edged lower but remains very elevated. Asian markets are mostly following this morning albeit Chinese tech stocks are getting hammered. US futures are pointing slightly upward.
FI: It has been some quite volatile days in recent weeks and yesterday was no different. Bunds yields ended 3bp lower on the day to the lowest since early September (-0.36%). Spreads were again volatile, where specifically Ireland has been unusually volatile in the past three trading sessions with 10y IRISH spreads first tightened then widening only to tighten again, all by 3bp each day from Tuesday to Thursday with no apparent trigger for the moves.
FX: EUR/USD slightly lower in overnight trading. The choppy SEK price action continues to reflect general risk sentiment. AUD outlook is weak. OPEC+ meeting in the headlines.
Credit: CDS indices came under slight pressure yesterday while cash bonds held up better. Xover widened 2.7bp and Main 1.1bp. HY bonds finished unchanged and IG tightened almost 2bp.
Nordic macro
Norway releases unemployment today. Unemployment has fallen steadily as the economy has reopened, and employment has risen. However, we are seeing abnormally high vacancies for the number of jobless, which could be a sign of growing matching problems in the labour market. This could slow the decline in unemployment, as it would mean that the normal level has risen. We nevertheless expect the seasonally adjusted jobless rate to drop to 2.4% in November.
