Market movers today
- Another quiet day on the data front, Euro Area Economic Sentiment Indicators will be released for September while business and consumer confidence surveys (NIER) are due for release in Sweden.
- ECB’s Annual Forum continues with several speeches today, while Daly and Bostic are on the wires from Fed.
The 60 second overview
The sentiment in the global financial markets turned towards risk-off mode as equity markets declined and credit spreads widened on the back of the rising inflation outlook, rising rates, more hawkish comments from the Federal Reserve combined with the fiscal uncertainty in the US as an increase in the debt ceiling still has not been passed in the US Congress. One of our favourite measures for risk-off sentiment, the VIX volatility index, also jumped yesterday.
However, it is risk-off with a “twist” as the yield on 10Y Treasuries as well as 10Y German government bonds rose yesterday rather than seeing the traditional flight-to-quality in a risk-off scenario.
This morning, Asian equity markets are following the negative sentiment from the US as uncertainty continues to dominate sentiment combined with the above factors. Furthermore, the oil price stabilised this morning after a recent rise, but uncertainty remains high.
Equities: Global equity markets broadly lower yesterday with the energy sector going against the trend. One very big change from the movements we saw Monday is that risk appetite took a big hit yesterday and the cyclical value trade change to a defensive value trade as yields continued higher. Risk off move also seen in the VIX index rising to 23. In US FANMAG complex broadly lower but European tech companies took the biggest beating yesterday. Dow -1.6%, S&P 500 -2.0%, Nasdaq -2.8% and Russell 2000 -2.3%.
The negative tone has continued in Asia this mooring with most indices down 1-2%. Futures in Europe is flat this morning while optimism is creeping back in US with futures being up roughly 0.5%.
FI: Global bond yields continue to rise and 10Y Treasuries have broken through 1.5% while 30Y US Treasuries broke through 2%. The US curve bear-steepened for the first time since early August on the back of hawkish statements from the Federal Reserve. There was a solid spill-over effect on to European bond market, where the 10Y German government bond yield was testing the -20bp-level and there was a modest widening of the BTPS-Bund spread of a few bps.
FX: The broad based risk-off mood and spike in market volatility weighed heavily on risk-, commodity- and USD-rate sensitive currencies yesterday. Most heavily hit in G10 space was the GBP but also NZD, NOK and AUD posted large losses. In the rest of the majors space ZAR and MXN were the biggest underperformers in a session where everything lost ground against the greenback.
Credit: The high-beta segment of credit markets sold off sharply yesterday. iTraxx Xover widened 7bp (taking it to 249bp) while Main widened a more modest 1bp (to 50bp). HY bonds widened 8bp, but IG closed less than 0.5bp wider.
Nordic macro
Sweden. Today the September business- and consumer confidence surveys (NIER) are reported. Up to date, overall business confidence across sectors have held up very well with manufacturing confidence at record high. However, considering that there are several signs of a slow-down in the global manufacturing cycle it is reasonable to expect something similar in Swedish confidence numbers. The situation is special though, since it is not necessarily demand that is softening but rather supply shortages that affect businesses. So at this juncture it is of special importance to monitor what corporates say regarding the development of demand on one hand and delivery times on the other.
Two speeches by Riksbank board members on the agenda (Breman and Flodén), none of them are likely so say much on current monetary policy considering that the minutes from the September board meeting are released tomorrow.
