Market movers today

We have a few ECB and Fed speeches today and in particular the Fed speeches may be interesting if they touch upon the monetary policy decision on Wednesday. We are still a bit puzzled about whether the glass is half full or half empty and hence we will pay close attention to the different views of the FOMC members in coming weeks.

This morning, UK retail sales in August are due out, which are expected to show the recovery has continued.

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In the US the preliminary US consumer confidence survey from University of Michigan is due out.

The 60 second overview

Equities. After yesterday’s equity sell-off things are looking more mixed in Asia this morning. US equity futures are flat, while many of the big Asian indices have erased the majority of losses that followed the opening hours. Interestingly, growth and technology stocks have clearly underperformed value post Wednesday’s FOMC meeting.

Oil price. The black gold looks set for the first weekly rise in three weeks. Yesterday, especially the short-end of the oil curve rebounded on Saudi Arabia’s Energy Minister Salman publicly criticising OPEC+ overproducing countries. Salman strongly hinted that OPEC+ policy could be changed ahead of the next regular meeting in December, as its output cut tapering plan has been challenged by disappointing oil demand. Finally, UAE – one of the biggest overproducers – stated that it will make up for it by making compensation cuts in October and November.

Bank of England. Yesterday the central bank kept monetary policy unchanged and signalled it will not hike rates for a very long time. More interestingly, the minutes showed the committee discussed the effectiveness and implementation of negative interest rates in the UK. While our base case remains the Bank of England will stay on hold, as the economy continues to recover, it is no longer refusing negative rates, as was the case under former Bank of England governor Mark Carney, and it may cut in case of an economic setback or a no-deal Brexit. If the Bank of England decides to go negative, we expect it to go deep, i.e. to something like -0.5% is more likely than just cutting 20bp to -0.1%. The discussion weighed on GBP yesterday.

FI. The US Treasury curve continues to flatten from the long end of the curve as the negative sentiment continues in the equity market. The uncertainty regarding the economic recovery and whether the Federal Reserve has provided enough support as well as how it is going to implement its new monetary policy objective has supported the long end of the Treasury curve.

FX. EUR/USD started the day by moving lower due to the general risk-off after the slightly disappointing Fed meeting Wednesday night. EUR/USD recovered during the day and remains in the 1.17-1.19 range, which we expect the cross will continue to trade within near term. The Fed’s inaction also removes the arguably most important near-term potential tailwind for the SEK and NOK. Bank of England’s discussion on negative interest rates weighed on the GBP yesterday.

Credit. Credit markets followed equities down, with iTraxx Xover widening 6bp and Main 1bp wider. Notwithstanding the softer tone in CDS, cash bonds and the primary market remain well-bid.

Nordic macro and markets

Norway. There are no market-moving releases out of Norway today. The most important topic for Norwegian markets now is what signals Norges Bank will give to markets next week at the 24 September meeting. The central bank is widely expected to keep all policy rates unchanged but markets have increasingly begun doubting its hiking cycle plans from July. Meanwhile, we think financial imbalance risks mean Norges Bank will even firm its hiking signals, which – if proven right – leaves topside risk for the short-end and the belly of the NOK swap curve. For more information see Reading the Markets Norway: Norges Bank to lift rate path; pay short-end and belly.

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