Market movers today
- US CPI inflation will be watched carefully for more input on the ‘transitory vs. persistent’ discussion on the inflation spike this year. The m/m change in the core CPI is the relevant number to watch and it has come down to average 0.2% in July and August after readings around 0.7%-0.9% from March to June. Consensus is for an 0.3% gain, which seems fair in our view.
- We also receive FOMC minutes from the recent Fed meeting, where they turned a bit more hawkish and mentioned beginning of ‘tapering soon’.
- In the euro area we get industrial production data, which will likely decline after weak data for Germany last week.
- Sweden releases the quarterly Prospera Inflation expectations report, which include Social Partners’ wage expectations (see below).
- Keep an eye on Brexit, as the EU is set to announce its proposal on how to ease border controls between Great Britain and Northern Ireland. Especially look out for how the UK government responses.
The 60 second overview
Macro: The IMF sent out their new World Economic Outlook (Recovery During a Pandemic: Health Concerns, Supply Disruptions, and Price Pressures) yesterday, downgrading very modestly their global growth forecasts for 2021 to 5.9% while keeping 2022 forecast of 4.9% unchanged. In general countries exposed to the global manufacturing sector (such as Germany and Asian countries) or hit by the Delta variant (such as US and some EMs) were downgraded most while commodity producing countries such as Russia and Middle Eastern countries saw healthy growth upgrades. Moreover the IMF still sees the prospects for recouping the loss of economic activity stronger in advanced economies compared with emerging and frontier markets given slower vaccine roll-out and tighter financial conditions in the latter group. While they downgraded the growth outlook for China and US, they are still more optimistic than our forecasts while we share the view on euro area outlook.
Federal Reserve: Atlanta Fed President Raphael Bostic says that inflation is lasting longer than expected adding that “transitory is a dirty word”. Bostic is a well-known hawk but it is still a very different language to what Fed policymakers said a year ago. Clarida is more dovish saying that the US is not heading for stagflation like the 70s.
Equities: The sour sentiment continued in stock markets yesterday with broad base declines. We are not see any signs of full-blown risk off but more softness across sectors and styles. Yesterday we even saw small caps outperforming with having any strong drivers behind it. In US, Dow -0.3%, S&P 500 -0.2%, Nasdaq -0.1% while Russell 2000 +0.6%. Risk appetite better in Asia this morning with most markets higher. US and European futures surfing around yesterday’s closing level.
FI: Yesterday’s main focus in markets was the EU’s NGEU 15y inaugural Green bond. EU issued 12bn, no grow, was priced near fair value based on the EU’s outstanding bonds. The massive order book in excess of EUR135bn, showed the strong demand for Green bonds.
FX: Commodity currencies, NOK, CAD, AUD and NZD rose vis-à-vis JPY and CHF yesterday. USD also gained yesterday, with USD/JPY making new high approaching 114 level and EUR/USD new low closer to 1.1500 level.
Credit: The sell-off in credit continued yesterday with iTraxx Xover widening 2.5bp while Main closed unchanged. HY bonds widened 5bp and IG 1bp.
October money market inflation expectations could very well show another leg up on the back of recent energy/commodity crisis. Unless there is a BIG lift this shouldn’t upset the market.
Riksbank buys SEK 0.3bn corporate bonds. DO issues SEK 7.5bn 3m T-bills and Kommuninvest (munis) issues in potential 2023-2028 maturities.