In focus this week
Today will be quiet on the data front, with no major releases scheduled
This week is expected to be calm before the storm of the US election. On Tuesday we will have the JOLTs report and the consumer confidence from the US Conference Board. On Wednesday, we receive preliminary estimate of GDP growth for Q3 for both the US and euro area. Thursday, we will receive euro area HICP inflation for October and September unemployment rate. Friday, we will receive job market reports from the US including non-farm payrolls for October. We also get the Swiss CPI.
Economic and market news
What happened during the weekend
In Japan, the ruling coalition lost its Lower House majority at an election yesterday as it lost 64 of its 279 seats in the 465 large House and thus comes 18 seats short. There are no real grounds for a government not including the Liberal Democratic party. That said, the election result implies a lot of political uncertainty, which is also reflected in financial markets. USD/JPY has traded back to the highest levels since July and long-dated JGB yields have increased a couple of basis points. It is also worth noting that the Democratic Party for The People and the Innovation Party, who could now be key to form a government, have both been critical of BoJ hikes. We will keep a close eye on the political negotiations this week.
In the Middle East, Israel retaliated the attacked carried out by Iran on 1 October, striking military sites early Saturday. Israel said it achieved its objective, while Iran said that damages were limited. In early trading Monday, the Brent oil price dropped to around 72.6 USD/barrel.
What happened on Friday
In France, Moody’s changed their outlook on France from stable to negative on the back of the fiscal problems. There is a clear risk of the downgrade if the country were to announce a “medium-term fiscal strategy that fails to reverse adverse fiscal trends or lacks credibility about its effective implementation.” France has a minority government and the budget for 2025 has not yet been approved.
In Germany, the Ifo index rose more than expected in October like the PMIs yesterday. The assessment of the current situation rose to 85.7 (cons: 84.4) from 84.4 while the expectations component to rose 87.3 (cons:86.9) from 86.4. While the overall level of the index is still low it gives some relief to the German outlook as the PMI survey showed the same development yesterday. The October data gives tentative hopes of a bottoming in activity, but we remain cautious of becoming too optimistic as it is just one month of data.
In the euro area, credit growth continued to rebound with lending to companies up by 1.1% in September, which is the highest rate since mid-2023. Lending to households was up by 0.7% which is the highest level since October 2023. Money supply as measured by M3 increased more than expected to 3.2% (cons: 3%, prior: 2.9%).
Equities: Global equities were lower on Friday and declined last week by more than 1% (down 4 out of 5 days). More notably, cyclicals continued to outperform and the VIX drifted higher, ending north of 20. The primary drivers last week were micro data, particularly the results from Tesla, which propelled the auto sector to the top of the performance table in the US. It is important to note the lack of spill-over to Europe and the very company-specific outlook in that sector. The increase in implied volatility was not so much a result of micro and macro data but rather due to the impending US election. In the US on Friday, the Dow fell by 0.6%, the S&P 500 by 0.03%, the Nasdaq rose by 0.6%, and the Russell 2000 by 0.5%. This morning, we have a mixed picture in Asia, with Japanese stocks climbing as the yen weakened following the LDP coalition defeat. US and European futures starting the week on a stronger note.
FI: The sell-off continued in the US bond market on Friday, where 2Y yields climbed some 6bp from the lows on Friday, while 10Y yields climbed 5-6bp. This morning US yields have also risen in Asian trading hours. The sell-off has mainly been driven by the possibility of a Trump victory and this week we will get the quarterly refunding statement from the US Treasury, which could add pressure to US government bonds. On top of this there is also a string of US economic data.
FX: NOK rose together with GBP, USD and EUR on Friday in an otherwise quiet end to the week. The sell-off in EUR/USD started to meet some near-term resistance around the 1.08 level. EUR/SEK rose to the highest level since September close to 11.50. EUR/NOK held steady around 11.84.
