Market movers today
It’s finally time for US CPI for September – the main data release of the week. We expect the headline to print relatively low at 0.2% m/m in line with consensus, as gasoline prices continued to decline during September. For core, we continue to see modest upside risks to the consensus expectation, and forecast a rise of 0.5% m/m (consensus 0.4% m/m).
China releases CPI and PPI early tomorrow morning. CPI inflation is expected to rise to 2.8% from 2.5% still staying below the 3% target. PPI inflation is set to decline further to around 1.0% y/y from 2.3% y/y. It has come a long way down from the peak in October 2021 at 13.5% y/y.
The 60 second overview
FOMC minutes: The minutes from the FOMC’s September meeting provided markets with little new information on Fed’s policy path, as the focus clearly remains on maintaining financial conditions restrictive for now. Some participants highlighted the rising recession risks abroad and the possible negative spill-over effects for the US, which have been noted in several Fed speeches lately as well. That said, as long as market functioning is not at risk, we doubt Fed will change course if underlying inflation pressures persist near current levels. The minutes underlined that the cost of overdoing the tightening is lower than the cost of allowing high inflation pressures to get entrenched. We agree, and continue to emphasize that any kind of a pivot at this point could lead to premature easing in financial conditions, and consequently risk prolonging the inflation. See also our US Labour Market Monitor – Early signs of easing wage inflation are not enough to spark a Fed ‘pivot’, 12 October.
Spill-over from UK: Euro area bond markets continue to remain sensitive to spill-over from the UK, where the BoE signalled only 2 days of additional bond buying. Gilts sold off through the day peaking 20bp higher at one point – only to reverse the entire move once BoE announced that they accepted ‘all’ offers.
Equities: Equities lower yesterday (again), MSCI world down 5% the last five trading days. S&P 500 and Nasdaq both down for a sixth session, with S&P500 posting lowest close since Nov-20 and Nasdaq since Jul-20. Bond markets easy to blame but despite still high intraday volatility in yields it was not the area of concern yesterday as US yields were lower while UK yields ended flat in the long end of the curve and lower at the short end. It was more of a waiting game ahead of the US CPI today, big start to earnings season Friday and the question of whether BoE can end emergency QE also due to be seen tomorrow/Monday. Behind the relatively small drop in equities, a very mixed story within sector as utilities sold off defensives underperformed cyclicals slightly. In US Dow -0.1%, S&P 500 -0.3%, Nasdaq -0.1% and Russell 2000 -0.3%. Not much of a positive story from Asia this morning with most indices lower and continued pressure on tech stocks and South Korea. US futures marginally higher while European futures are lower.
FI: Yet another eventful day in rates markets, with significant curve steepening across the board. Uncertainty about BoE’s intention to end its bond buying already on Friday caused volatility from the morning and a weak German supply amid Knot saying at least two significant rate hikes before neutral rate reached all contributed to the higher rate with core some 10-12bp higher in the 10y point. However, Bunds ended broadly unchanged on the day due to BoE spill-over.
FX: The Fed minutes supports our case for further USD over the coming 12 months, as a ‘pivot’ would be premature at this point. GBP continues to trade under high volatility, likely to rise slightly towards year-end. Impending European recession will weigh on Scandies over the coming quarter, but we see a chance for a NOK comeback in 2023. Watch out for Swedish inflation and the SEK today.
Credit: Yesterday credit markets staged yet another late recovery, reversing a day of widening at the last hours of trading. This left iTraxx main some 1.5bp tighter and Xover some 8.4bp tighter. Both indices closed in 133bp and 634bp respectively. Both the primary and secondary cash markets remain very inactive and illiquid.
Nordic macro
Swedish inflation (CET 8:00) is expected to have taken another jump higher during September with CPIexE at 7.5% y/y (in line with Riksbank and market) and CPIF at 9.1% according to our own forecast (Market: 9.4% and Riksbank: 9.7%).
