Market movers today
- We have a couple of interesting data points today. First, the German ZEW for October is released. It has dropped quite a bit in recent months and it does tend to lead PMI by 1-2 months. In the US, the NFIB small business optimism is interesting because it has some important subindices on labour shortage and wage plans.
- IMF will also release its World Economic Outlook with new forecasts for the global economy. The forecasts can be a bit lagging, as they are some time under way but the press briefing at 15.00CET could add some colour on how IMF sees inflation and growth risks.
- Speeches by three Fed members (Clarida, Evans and Bostic) may shed more light on the tapering outlook after the recent soft employment number. Especially Clarida is interesting, as we know Evans is dovish and Bostic is hawkish. We expect the Fed to move on with the tapering decision in November.
- The Norwegian government unveils its budget for 2022 today (see more below in the Nordic macro section).
The 60 second overview
China: China is examining whether 25 financial institutions have too close ties with private companies, leading to worse credit quality. China did a similar exercise back in 2015. Besides that Evergrande missed another payment yesterday. Moody’s downgraded Modern Land, another sign that the problems are spreading to other parts of the property market. There are downside risks to global growth because of the development in China, see Research Global: Five reasons we see rising downside risks to growth.
Commodity prices: Oil prices remain high with WTI oil still above USD80/barrel, the highest since 2014. The skyrocketing energy prices overall are putting upward pressure on some metals such as aluminium, which require a lot of energy to produce. Aluminium prices are the highest since 2008.
Equities: Equities fell yesterday, dragged down by US and Latin America while Europe and Asia were higher. The inflation/stagflation trade dominating once again as yields, oil and metals all rose. Value outperforming growth with cheap energy stocks outperforming long duration tech stocks. Since the ECB meeting a month ago the German 10Y yields are 25bp higher and energy sectors have outperformed semiconductors with more than 30% in the Stoxx 600. In US yesterday, Dow -0.7%, S&P 500 -0.7%, Nasdaq -0.6% and Russell 2000 -0.6%. Asian markets are mostly lower this morning. European and US sentiment negative as well with futures being 0.5-1% lower.
FI: European yields continued to rise yesterday on the back of hawkish comments from ECB’s Knot regarding that the investors should take inflation more seriously. Later, ECB’s Lane struck a more dovish tone, but these comments did not have much impact on the negative sentiment.
FX: JPY was the big loser yesterday and AUD and USD among the winners in G10 currency space as rising commodity prices and continued upwards pressure on US rates set the tone. USD/JPY rose above 113 – the highest level since 2018.
Credit: Credit markets suffered yet another risk-off session yesterday with iTraxx Xover widening 4.5bp (to 269bp) and Main 1bp (to 53bp). HY bonds widened 5bp while IG bonds closed the day marginally wider.
Nordic macro
The Norwegian government unveils its budget for 2022 today, and we naturally expect much tighter fiscal policy than this year as the various support packages are phased out. We expect the structural, oil-adjusted deficit to be just below 3% of the value of the oil fund, which is in line with the fiscal rule. Even if we do see a change of government later in the week, and big changes in the final approved budget, we would still expect this to be the upper bound for transfers from the fund.
