Market movers today
We get some interesting US data today. The JOLTS data will provide more key information on the labour market and so will the consumer confidence numbers from Conference Board, which contain the jobs plentiful vs. hard to get indices.
US house prices are also due and have been surprisingly strong lately. However, we may see prices cool down again following the recent sharp increases in mortgage rates.
In the Nordics we get Swedish GDP (see more below).
The 60 second overview
Markets. While this week will bring plenty of key data releases – most notably the US non-farm labour market report on Friday and Eurozone inflation on Thursday – markets have been off to a slow start since the weekend. Stabilisation in Chinese markets on the back of a stamp duty reduction seems to have calmed global risk appetite. That said, global equity indices still look set for the worst calendar-month this year.
Overnight most Asian equity indices are trading in green while US yields have come a little lower leaving 2Y treasury yields now just below 5.00%. Japanese unemployment showed a slightly surprising increase although from very low levels. The Japanese labour market remains very tight and we still think Japanese authorities underestimate the underlying inflation pressures.
In the near-term, we expect US activity data to perform better than those in the Eurozone. Markets will hope for a sweet spot in economic releases. That is, on the one hand, the global economy must not do too well as this is likely to trigger additional monetary tightening. On the other hand, it must also avoid an outright recession or sharp growth slowdown for risky assets not to suffer. Following last week’s PMI releases the balance of risk for now seems skewed towards a higher recession probability.
We maintain the call that we have seen the peak in US policy rates whilst we still lean – not much more than that – towards a final 25bp rate hike from the ECB in September.
Equities: Investors continued in a buoyant manner on Monday. Jackson Hole lingered in focus, as the macro agenda was thin and hence the drivers were the same as Friday. Equities grinded higher in US and Europe caught up. S&P500 rose 0.6%, Stoxx 600 0.9% and Nordics bounced a full 1.4%, on track to recoup some of last months’ losses. It was a risk-on session, with growth, cyclicals and small caps outperforming. In the Nordics, this translated into EQT, Volvo and Sandvik being the stocks on top, after being the worst performing stocks the last month. Asian markets are a notch higher this morning and US futures indicate a mildly positive opening too.
FI: US Treasury yields ended Monday with a modest decline in yields across the yield curve. This has continued this morning in the Asian trade and the 2Y US Treasury yield is now below 5%. There was also a modest decline in the longer-dated European government bond yields, where the periphery outperformed the core-EU government bonds.
FX: Yesterday’s session was dominated by a relief rally to China and industrials exposed currencies such as SEK, AUD and EUR. EUR/USD rebounded slightly above 1.08 while EUR/SEK dropped back below the 11.90 mark. EUR/NOK remains in the 11.50s range while EUR/GBP keeps hovering around the 0.858-mark. USD/JPY remains at yearly highs just above 146.
Credit: Credit markets started the week with a significant number of new primary deals announced throughout Europe. In Scandi space Danske Bank acted as lead manager on Länsförsäkringar Bank AB’s new Senior Non-Preferred Green bond as well as on Lifco AB’s Senior Unsecured issue. Overall, we expect a continued busy primary market in the coming days. Due to the high primary activity the secondary market was relatively muted with iTraxx Main 1bp tighter at 74bp while iTraxx Xover was 2bp tighter at 413bp.
Nordic macro
Sweden: Today focus is on Q2 GDP (released 08.00 CET) and market expectations are very depressed (-1.3 % qoq sa) which is very close to the reading of the (non-official) GDP indicator (-1.5 % qoq sa). We expect a less negative -0.5 % as consumption appears to have bottomed out and employment has continued its upward trend. As shown in the most recent issue of Reading the Markets Sweden, 25 August, the GDP indicator is very volatile and often revised significantly. We also find it strange that Sweden should deviate to such an extent form positive GDP reading in other Nordic and export markets. To be sure, residential construction remains a severe drag on growth. July trade balance and retail sales are also released this time.
Deputy Governor Bunge speaks about the economic outlook and monetary policy 09.30 CET. Expect a similar message as Flodén’s yesterday, i.e. more hikes coming (we anticipate one more though).
