Market movers today
Another quiet day on data front. The euro area retail sales for August are expected to reflect a fall in household real income with consensus expecting a 0.4% drop from July.
Also, the ECB minutes are out this afternoon. There we will get a bit more colour on why the Governing Council decided to hike rates by 75bp in September and also what their expectations are for further rate hikes ahead.
We also have Fed Evans, Cook and Kashkari speaking in the evening.
The Norwegian 2023 fiscal budget will be published today (see more details in Nordic section).
The 60 second overview
OPEC+ yesterday decided on relatively large output cuts, planning to collectively reduce production by 2 million barrels a day, equivalent to about 2% of global consumption. The actual cut may however be smaller, probably closer to 1 million barrels as many smaller members such as Nigeria are already producing below their targets. The intended production cuts drew criticism from the US, fearing that higher oil prices will hit the global economy at a fragile moment. Oil prices continued their rise yesterday to USD 93 per barrel and have now increased almost 10% over the past week. We see the Brent oil price hovering around USD 100 per barrel in Q4.
The higher oil prices were one of the key drivers behind weaker global risk sentiment after the last few days’ strong sessions, sending equities lower while global bond yields rose on the back of higher market implied inflation expectations. The hit to risk sentiment also supported the USD with EUR/USD falling back below 99 but the cross has rebounded somewhat this morning. Credit markets also reflected market concerns with the iTraxx Xover widening 18bp while Main widened 3.5bp.
In equity markets, defensives back in style, especially the energy sector after the OPEC+ production cut. Interestingly, growth- and quality stock outperformed despite long-end yields ticking higher. Health care and tech were among the best sectors, while banks were among the worst. Dow, S&P and Nasdaq closed down -0.2%. US futures are somewhat higher again this morning.
In fixed income markets, the volatility in the financial markets continue as shown by yesterday’s significant rise in the interest rates across markets as well as the rebound in the 5y5y EUR forward inflation swap. The change in the 5y5y inflation swap is most likely to due to the rise in the oil price on the back of the production cut from OPEC. Furthermore, the spread between Italy and Germany widened on the back of rating concerns given the recent comments from Moody’s regarding a possible downgrade of Italian debt. The German ASW-spreads also widened on the back of the higher rates and wider credit spreads.
FX: The cross-asset rally came to an end yesterday as noticeably EUR/USD failed to break through 1.00 and fell back to the 0.98-levels; equally, equities soured a tad. The OPEC+ meeting ended with an agreement to cut production by 2m barrels/day. Naturally, oil equities saw some support and the Biden administration is publicly criticising the OPEC+ decision.
Credit: Following the last days’ substantial tightening, credit indices changed direction yesterday and iTraxx Xover widened 18bp while Main widened 3.5bp.
Nordic macro
The Danish Prime Minister yesterday called a general election for November 1. Polls point to a close race between the main blocks, much depends on whether some smaller parties will make the threshold and it is not clear what coalitions are possible. Still, there appears to be broad agreement about the macroeconomic framework among the main parties, so there should be no near-term market impact. It was widely expected that an election would be called this autumn.
The Norwegian 2023 fiscal budget will be published today. The signals from the government ahead of the publication have been crystal clear: the government plans to cover all the extraordinary expenses, not only for the electricity subsidy, but also for other extraordinary expenses. The funding is of course made easier by the fact that a significant proportion is covered by taxing the profits in the power industry. But in any case, the fiscal policy in Norway will most likely contribute to ease the pressure on Norges Bank.
