Market movers today
Today is a quiet day ahead of tomorrow’s ECB meeting.
In Sweden, we get the ‘big’ inflation expectation survey from Prospera. Riksbank’s Floden speaks at 16:00 CEST.
The 60 second overview
US technology stocks – ‘what’. The winning stocks since March, US technology, declined 4.1% yesterday, causing large ripples across FX, rates, commodities and pulling down most other equity indices as well. NASDAQ has now corrected 10% since last week.
US technology stocks – ‘why’. Theories on the driving force remain somewhat vague. Either, the technology sell-off is driving cross-asset uncertainty and thus the reasons should be found in stretched optimism pulling back a bit or similar technicalities. Or, macro uncertainty is driving the sell-off and so Brexit, US politics or geopolitics are underlying reasons, which may act as more persistent gravity. We lean to the former.
US technology stocks – ‘what is next’. Looking ahead and with the notion this sell-off is technical in nature, next week’s FOMC meeting should spur some calm. The events of recent weeks show latent risks remain high and at the current point in time, this will likely force the hands of various central banks who are likely to re-iterate continued economic support on the back of this and may even add to such.
Oil tumbled below USD40/bbl. Brent tumbled below USD40/bbl yesterday – the lowest level since June. The steep drop came on the back of souring risk sentiment, a stronger USD and continued focus on OPEC+ tapering production cuts amid weak compliance to earlier agreed cuts. The market will look towards Thursday’s weekly US oil inventory report for latest data on supply and demand in the US.
Equities. US NASDAQ is now down 10% since last week. Most other indices in red on the back of yesterday’s continued sell-off.
FI. US and EU yields declined on the back of the moves in the global equity markets. The move was driven by the long end of the curve in both US and Europe. We also saw a modest widening of the spread between the core-EU and periphery, which was partly driven by the Italian 20Y auction yesterday. However, we do not expect that we are moving towards wider spreads given the ECB QE programmes. The ECB has clearly stated that it does not want more volatility in the intra-EU spreads.
FX. In an ocean of ‘red’ the NOK yesterday led high beta losses in FX majors space with price action similar to the sell-off in GBP but in even bigger size given the move lower in the oil price. Commodity currencies also posting losses on the day with RUB, ZAR, AUD, NZD roughly 1% down versus the greenback. Safe havens in JPY, USD and CHF were among the clear winners.
Credit. Credit markets had another soft day, with iTraxx Xover going 6bp wider, thus approaching 330bp, while Main ended 1bp wider at 54bp. Cash bonds are still outperforming CDS and investor appetite for primary market transactions remains intact
Nordic macro and markets
Sweden. This morning brings the quarterly (big) Prospera inflation expectations survey. As inflation has surprised to the upside these past two months, we look for a possible rebound and ensuing stabilisation on the shorter horizons (one and two years), as especially one year expectations plummeted during Q2. The Riksbank, however, is mainly concerned with five-year expectations and our best guess is that they remain fairly stable around 1.7%, which thus far has been deemed as close enough to the 2%-target as to not cause the Board any obvious discomfort.
