Market movers today
Today, markets will zoom in on the US jobs report. We expect another strong reading of 220k.
In Germany, we will get industrial orders for September, which will likely continue to indicate a slowing manufacturing sector.
The 60 second overview
Bank of England: The Bank of England hiked the bank rate by 75bp to 3.0% as expected on Thursday. We expect smaller hikes going forward and keep the peak rate at 3.75%, which we believe will be reached in February. Our view is for less hikes than the market is currently pricing in as we expect GDP data next week to confirm that the economy has already entered recession. That being said, risks remain skewed towards additional hikes.
Norges Bank: Norges Bank also announced a 25bp hike yesterday, sending the sight deposit rate to 2.50%. While our call was for a 25bp hike, analysts and markets (37bp priced) were evenly split between 25bp and 50bp. This led to considerable market moves in rates and FX markets post announcement.
EU-China: German Chancellor Olaf Scholz is the first G7 leader in three years to pay a visit to meet Chinese leader Xi Jinping in China. The visit comes as geopolitical tensions mount, as the US continues to distance itself from China and as the EU seeks to adjust their ties. After the meeting, Xi said that large nations of influence such as China and Germany should all the more work together in ‘times of change and turmoil’. China is seeking to reassure the business delegation that travels with Scholz that despite the country’s tight Covid policy, they remain open for trade and investments. Scholz, on the other hand, will have to balance between weakening reliance, diversifying supply chains and enhancing security while still fostering business relations. Scholz’ visit has also received criticism in the homeland, particularly after shipping giant Cosco received green light from Berlin last week to obtain a stake in a Hamburg port terminal despite opposition from coalition partners.
Equities: Equities came under pressure yesterday, again driven by higher yields, fear of central bank tightness. Hence, no surprise to see cyclical growth underperforming led by tech and communication services. These sectors normally lead the positive earnings surprises but not this time around as they are coming out among the weakest sectors. The combination of weaker growth outlook, tighter monetary policy and weak earnings reports is really challenging for this group of equities. In US yesterday, Dow -0.5%, S&P 500 -1.1%, Nasdaq -1.7% and Russell 2000 -0.5%. In Asia, China stocks going ballistic this morning with Hang Seng up 7%. The rally purely based on speculation that authorities forming a committee to explore an exit from zero-Covid policy. Rest of the Asian markets are more mixed with Japan almost 2% lower. US and European futures are higher this morning.
FI: The rise in yields continued yesterday after the hawkish comments from Federal Reserve Chairman Powell late Wednesday. The rise comes on the back of expectations of more rate hikes although at a slower pace given the high inflation data as well as the solid labour market. Hence, today’s US nonfarm payrolls will be very important for this view.
FX: BoE and NB hiked interest rates yesterday, but GBP and NOK weakened as both central banks came across as less hawkish than expected by the market. EUR/USD dropped below 0.98 yesterday as US interest rates rose in the aftermath of Wednesday’s FOMC meeting.
Credit: Wednesday night’s hawkish Fed meeting sent EUR CDS indices wider yesterday and iTraxx Main closed at 113bp (+2bp) while Crossover was 8bp wider at 551bp. Meanwhile, euro FIG and corporate issuance came almost to a halt with the only deal coming to the market being a covered bond.
