Market movers today
- We have more data today on the state of the US economy. US retail sales will give more information on how much goods consumption is slowing as the effect of the stimulus checks fade. Very strong US goods consumption has been a key driver behind the global manufacturing overheating and pressure on global freight. Car sales has been weak (partly due to low inventories and bottle necks in production) but it is more interesting how the retail sales ‘control group’, which excludes autos, gas and food services, is developing. We look for a continued gradual decline in coming months.
- The Philadelphia Fed survey dropped strongly in August and points to weaker activity than what is shown in the ISM manufacturing survey. Consensus is for a small decline, which seems fair. Also keep an eye on initial jobless claims.
The 60 second overview
Energy prices: Surging energy prices remain a theme in markets with both gas and electricity prices through the roof. Lack of wind and rain has been a drag on electricity production in Europe. US gas production is still struggling to get back on its feet following the hurricane Ida, which raged through Louisiana two weeks ago and hurricane Nicholas is hampering production further. Gas supplies from Russia have also slowed as their inventories were depleted from the cold winter and the finished Nord Stream 2 is still not transporting gas to Europe. As the weather is cooling in Europe surging gas prices already now is quite worrying. Oil prices also caught up to the gas rally with Brent oil surging more than USD2 to above USD75 per barrel.
Japan: Exports continued on a strong footing in Japan with volumes up another 1.7% mom in July led by strong shipments of chip manufacturing equipment. That said, car exports are starting to feel the squeeze from lag of Asian supplies.
Inflation & green transition: This morning we have published a paper that explores various channels how climate change and mitigation policies impact euro inflation. Via temperature changes, rising carbon prices as well as higher production costs Europe’s green transition will likely have an upward impact on HICP in our view, but falling prices for renewable energy and substitution away from carbon intensive products should mitigate the pro-inflationary impact. Uncertainty about the impact of climate change on the economy and inflation remains considerable. Model simulations suggest that the inflation boost even in a net zero 2050 scenario will remain in the low single digits and we do not think it will trigger aggressive tightening efforts from the ECB. That said, we see upside risks to inflation expectations in the euro area should governments become serious about their net zero 2050 targets. Read more in Research Euro Area: Europe’s green transition – the heat is on for euro inflation, 16 September.
Equities: Global equities higher yesterday lifted by US markets alone, while rest of the world was lower. US session more or less a complete reversal of the session Tuesday as market started out flat and ended close to day high. Sector performance naturally also very different across the Atlantic but one thing in common was Energy stocks outperforming. Some of the defensive sectors underperforming like utilities and consumer staples. In the US: Dow +0.7%, S&P 500 +0.9%, Nasdaq +0.8% and Russell 2000 +1.1%.
The positive sentiment has not continued in Asia this morning where most markets are lower led by Hong Kong. European and US futures are close to unchanged, giving up some earlier gains.
FI: Yesterday was packed with plenty of issuance and today will see large issuance as well. The large issuance and also (but smaller) rise in US yields may be the driver behind the 3.5bp rise in German 10Y yields seen in the late afternoon yesterday.
FX: The upwards trend in commodity prices continues and the rise in oil and gas prices has unsurprisingly aided petroleum exporting FX incl. NOK higher. For EUR/USD spot, the effects seem to be mixed.
Credit: While CDS indices saw a small widening, with iTraxx Xover and Main 0.4bp and 0.2bp wider, respectively, cash bonds fared better. HY bonds tightened 2bp and IG tightened slightly.
