Market movers today
The most important data releases today will be the November Flash PMIs from the euro area, UK and US. We expect the figures to provide further evidence of GDP contraction in the euro area already during Q4, while we still see the US economy continuing its modest growth.
From the US, October durable goods orders and new home sales as well as the latest MBA mortgage figures will be released. While the broader economy is still in decent shape, especially the housing market has already showed clear signs of weakness.
Finally, FOMC minutes will be released tonight, and markets will naturally pay close attention to any hints about the future rate hike outlook.
The 60 second overview
The global economy should avoid a recession next year despite a long lasting inflation problem. That is the overall picture from the OECD’s new economic outlook. The euro area and the US slows to 0.5% growth next year. At least for the euro area that looks like a good case scenario with inflation remaining at very high levels in the outlook.
Consumers: Euro area consumer confidence increased in November for the second month straight, as fiscal measures combined with falling natural gas and electricity prices looks to have broken the downward trend. Despite the recovery, confidence remains at deeply recessionary levels and still points to a significant decline in private consumption during Q4.
Gas price cap: After months of wrangling and fraught negotiations, the Commission proposed a cap level of 275 euros per megawatt-hour, well above current levels of about 120 euros, but below the highs the continent suffered in the summer. The proposal still needs approval from national governments and will be discussed by energy ministers at their emergency meeting in Brussels on Thursday, see euronews.
Record rate hike: The Reserve Bank of New Zealand (RBNZ) hiked the official cash rate by 75bp overnight to 4.25%, in line with our expectations. Markets were divided between 50 and 75bp ahead of the meeting, but RBNZ had discussed hiking by even 100bp, which together with the overall hawkish communication supported NZD FX. Earlier in the fall RBNZ was already eyeing the end of its hiking cycle, but the clear upside surprise in the Q3 underlying inflation combined with the recent rise in inflation expectations forced it to up the hiking pace from the earlier 50bp instead. We have highlighted similar risks of further tightening pressures elsewhere as well, especially in the US. Despite RBNZ also now forecasting a recession (GDP -1%) in 2023, markets currently price in the terminal rate at 5.5%.
Equities: Equities higher yesterday with defensives outperforming cyclicals for the fifth day in a row. VIX also lower for the fifth consecutive session just as value outperforming growth for the fifth session in a row. Yields lower and hence the negative correlation between yields and equities continuing. In US Dow +1.2%, S&P 500 +1.4%, Nasdaq +1.4% and Russell 2000 +1.2%. Asian stocks higher this morning with New Zealand going against the trend after the RBNZ lifted yields by 75bp overnight. European futures are higher while US futures are mixed this morning.
FI: Global bond yields keep declining and the curves continue to invert as the market braces for more rate hikes and increasing risk of a recession. 10Y Treasuries fell by 6bp, and the slope of the 2Y-10Y US curve is -75bp, a level not seen since 1981.
FX: The USD has erased part of its recent gains with EUR/USD bouncing back to the 1.03 level. NOK had a strong session yesterday with EUR/NOK now back in the low end of the recent range while EUR/SEK has settled just south of the 11-mark ahead of Thursday’s Riksbank meeting. After the recent decline in EUR/GBP, the cross yesterday stabilised just north of 0.8650.
Credit: Credit indices improved yesterday and we saw decent activity in both primary and secondary markets. ITraxx Main tightened 3.2bp to 92.4bp and iTraxx Xover tightened 15.8bp to 461.2bp. The latter is the tightest closing level we have seen in over 5 months.
