Dollar Rally

Market movers today

Today focus will be on US durable goods orders and euro area M3 money supply growth. Consensus expects that durable goods orders fell 0.5% m/m in august and that euro area M3 money growth will dive further into negative territory. While much of the decline in the money supply is due to base effects from quantitative tightening (QT), we have also seen a continued weakening in credit to the private sector. This should naturally be seen in light of the tightening monetary policy stance.

In Sweden, we receive a string of data points including trade balance figures, NIER confidence survey, and household lending growth.

The 60 second overview

ECB: Governing council member Robert Holzmann yesterday said that he thought it was unclear whether the policy rate had peaked due to persistence in inflation, i.e. raising the possibility that the ECB may have to hike further.

Japan: Minutes from the July Bank of Japan meeting revealed that most members did not think achievement of inflation goal was in sight, while one member thought it might be possible to assess whether the target was hit in Q1 next year.

Gold: The gold price has held up relatively well amid rising bond yields and rebound in the USD. However, this week it has started to give in and yesterday it fell to the lowest level in over a month.

Equities: Equities were lower for another session, thereby reversing some of Monday’s modest gains. S&P 500 dropped a full -1.5% and Stoxx 600 -0.6%. Nasdaq is now only a percentage point away from a full correction the last month. Yields continued to govern the direction of equities. As such, yield sensitive groups of stocks underperformed, like utilities and tech (Vestas, Evolution, Orsted). Unlike Monday, this was a risk off session. VIX rose and is now inches away from the important 20-level. Defensives outperformed cyclicals, with energy, consumer staples and health care holding up (Novo Nordisk, Genmab and Sampo in the Nordics). Pulp names also against the stream, with SCA and Stora Enso up about 1%. US futures are turning around this morning though and Asian markets are mixed.

FI: Yields to stay higher and potential advancement of the PEPP reinvestments sparked another “higher yield and wider spreads”-reaction. Fed’s Kashkari said that rates could probably go higher while ECB’s Holzmann said that they hopefully can discuss PEPP soon. Holzmann added that he would not favour outright APP sales. That combined the German finance agency revised Q4 issuance plans lower led to an outperformance of core yields. Reports of potential Italian budget deficits above 4% (initial 3.7%) weighed heavily on the BTPs, where 10y BTPs-Bund spread widening 7bp to 192bp which is the widest since March. Today the TLTROs repayment settles, with EUR101bn repaid. This will reduce the excess liquidity by roughly the similar amount.

FX: Another strong day for the USD, with USD/JPY challenging new highs and EUR/USD moving further below 1.06. Thus far into the week however, SEK outperforms rest of G10 (inc. USD) and USD/SEK broke below 11.00 yesterday, despite another sour day for risk. Neighbouring NOK does not follow suit however, and instead EUR/NOK continues to trade within the 11.40-50 interval.

Credit: Credit markets took a sharp leg wider yesterday where iTraxx Xover widened almost 12bp and Main almost 3bp. The cautious tone was also visible in the primary market where activity was subdued.

Nordic macro

In Sweden various statistics drop today. Trade balance figures is first out (CET 8:00). It has been suggested to be one of the major contributors for the eventual decline in Swedish growth. However, as the July numbers bounced back upwards it is of interest if the statistic will further strengthen the improving trend. We also get household lending growth figures which may be bottoming out which we hope these numbers will signal.

Then we have the NIER confidence survey (CET 9:00). It includes price plans for the retail and service sector which are still above levels that are not in accordance with the inflation target. Furthermore, it also includes labour market indicators which is of relevance to see if the increase in the unemployment rate in August were indicative or only a deviation.