Market movers today
A quiet start to the week on the data front, with only US Empire Manufacturing index due for release. The Fed’s Harker (voter, dove) is scheduled to speak on economic outlook in the afternoon.
Later in the week, focus will remain on the ongoing conflict in Israel as well as the next round of economic data. September retail sales and industrial production data will be released for the US on Tuesday and for China on Wednesday morning. UK September labour market report is due for release on Tuesday followed by CPI on Wednesday.
ECB’s silent period will start on Thursday, and de Guindos is scheduled to speak on Tuesday. There will also be a range of Fed speakers on the wires, including Powell on Thursday, before blackout begins on Saturday.
The 60 second overview
The conflict between Israel and Hamas continues and is providing volatility to the financial markets with the traditional safe-haven flows. This has to be held against the theme of “higher for longer” regarding global monetary policy. Hence, we saw some solid moves in both bond and currency markets in the past week.
This morning 10Y US Treasury yields rose some 3-4bp in Asian trading as the safe-haven flows are seen to be easing as the US and its allies are trying de-escalate the conflict. US President Biden may visit Israel soon. Asian stock markets are also in red this morning following the negative sentiment in the US on Friday, where S&P500 declined 0.5%. The large liquidity injection from the Peoples Bank of China this morning has not helped the Asian equity markets so far even though PBOC announced the biggest medium-sized liquidity injection since 2020.
The oil price has remained stable after the slid rise on Friday.
Poland held parliamentary elections yesterday. The first exit polls suggests that the opposition lead by former EU council president Donald Tusk won 248 seats of the 460-strong lower house of parliament. Thereby the incumbent Law and Justice party did not regain power. This marks a sharp change in Polish politics towards more pro-European policy. The polish Zloty strengthened as we had predicted earlier since Poland will now likely receive EUR36bn in grants and loans that the EU is currently withholding due to concerns over the rule of law in Poland and confrontations with the EU fades.
Equities: The inflation-week ended with most indices lower. This concluded a week of solid gains though, primarily in Europe and Nordics with indices up 1-2% for the week. The investor sentiment is still pending though. Defensives outperformed cyclicals, large caps beat small caps and the appetite mainly circled to value- and quality stocks. Energy stocks stood out, up 5-6% for the week. The yields-battered utility sector also rebounded after sharp losses during the last month. Meanwhile, consumer discretionary continued to underperform (-7% last month) in anticipation of weak Q3 reports. Bond markets continued to dictate equites last week. This appears to continue this morning as well, with rising US yields sending Asian markets lower. US futures are still a tad higher though.
FI: Last week was dramatic in the global bond markets where 10Y US Treasuries traded between 4.50% and 4.70% and now are down towards 4.6%. Bunds declined from almost 3% down to 2.75%. The “higher for longer” theme still dominates the market, but when 10Y Treasuries trades close 5% and Bunds towards 3% the demand for bonds picks up. This morning US Treasury yields have risen modestly in Asian trading hours.
FX: EUR/USD starts the week in the tight range from last Friday; that is at the lower 1.05s. USD/JPY has moved marginally lower but remains elevated at 149.5. EUR/GBP continues to trade close to the 0.86 mark. EUR/SEK was slightly lower after CPI and FX reserves news. However, SEK gains proved transitory as the cross is back at 11.58. PLN strengthened after the Polish election result on Sunday which suggests the incumbent government will be replaced by pro-EU coalition. EUR/PLN dropped close to 10 figures as a kneejerk reaction when markets re-opened.
Credit: Credit markets went into risk-off mode before the weekend. Itrax main widened 3.5bp to close at 84.8bp while Itrax Main widened 16.8bp to close at 449.8bp. Primary market activity was relatively muted
Nordic macro
There are several Riksbank events and speeches this week. On Tuesday, the Riksbank Board is “questioned” by the Riksdag finance committee about monetary policy and for the remainder of the week we look forward to speeches by Governors Thedeén, Flodén and Breman. Focus is likely to be on how serious they look on the higher-than-forecast September inflation.
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