Market movers today
A string of central bank speakers on today’s calendar. The interpretation of recent tightening of financial conditions will be closely watched.
The weekly jobless claims data in the US have been among those indicators pointing to a still-strong labour market, so this data will be interesting to follow today.
From Japan, we get August cash earnings at 1:30 CET Friday. It has disappointed over the summer, and a pick-up here is key for the BoJ to start normalising its policies.
The 60 second overview
US Macro: US data came in weaker than expected yesterday, providing some support to market sentiment. ADP private employment rose by only 89,000 new jobs in September, which was well below expectations of 150,000. The ADP figures have often deviated quite substantially from the official payrolls data, but markets took notice of the weakness as a sign of some renewed softening in the US labour market. The headline ISM Services index fell in line with expectations from 54.5 to 53.6 in September, but what stood out was a significant decline in the forward-looking new orders component from 57.5 to 51.8. In our view, this points towards some weakening of consumer demand ahead.
Oil: The oil price rally has clearly lost steam, and yesterday the Brent price plunged 6% to 86.4 USD/barrel yesterday, despite Russia and Saudi Arabia confirming their commitment to maintain the OPEC+ production curbs of 1 million barrels/day until the end of the year. Tighter financial conditions might be beginning to bite in the commodity markets, and furthermore, the weekly EIA report out yesterday showed further weakness in US gasoline demand, now being at the lowest level for the season in 25 years.
Equities: Equities finished a notch higher yesterday. The trigger for the turnaround was not hard to find: A pullback in yields. S&P 500 immediately rebounded 0.8% while Stoxx 600 only recovered to -0.1%. Large caps outperformed small caps, growth beat value and cyclicals rebounded. Huge sector rotation dispersion again, with best performing sector consumer discretionary up 2% and underperforming energy down -3%, as oil prices plunged. The yields fear is easing in Asia as well this morning, with BB APAC up 2%. US futures are unchanged.
FI: The bond market sell-off stalled yesterday as weaker US macro data supported the sentiment. 10Y Bund yields declined by 5bp to 2.91% throughout the day, while the 10Y UST yield ended the day 7bp lower at 4.73%. The 5y5y EUR inflation swap rate was close to unchanged implying that a decline in real yields was behind yesterday’s move.
FX: Yesterday’s session saw the latest USD rally take a breather amid rates rallying and equities rebounding. This contributed to lifting EUR/USD above 1.05. Notably, despite the slight relief in risk-sensitive assets neither NOK nor SEK saw any strength with both EUR/NOK and EUR/SEK continuing to move higher. USD/JPY still trades around the 149 level after Tuesday’s knee-jerk reaction lower while EUR/GBP trades around the 0.865-mark.
Credit: Credit markets were in a wait-and-see mode yesterday as markets digested important macroeconomic numbers out of the US. The primary credit market was also muted with low new issuing activity. Main was 1bp wider while X-over was 4bp wider.
