Market movers today
- On another slow day with regards to releases, markets will start to tune in on the ECB meeting tomorrow.
- Early Thursday morning, Bank of Japan wraps up a two-day policy meeting, where we expect no changes to the policy stance. We will look for discussions on phasing out of the pandemic programme and comments on the weak yen.
- In Sweden, the debt office presents a new budget, see more below.
The 60 second overview
US: Democrats, led by Senator Elisabeth Warren are proposing US corporations pay a minimum 15% tax rate on financial profits they report to shareholders. The move would raise USD300-400bn over the coming ten years.
Australia: Inflation, measured by the trimmed mean CPI, increased to 2.1% in Q3 and beat consensus expectations. Consequently, the market now looks for the Reserve Bank of Australia to raise its policy rate three times before then end of next year.
Energy: Energy prices have stabilised recently, notably with the price on Brent crude trading around the USD86/bbl level. OPEC meets next week after the surprise move last month to not raise output further than already planned amid the surge in oil prices. US on Tuesday said it would continue to pressure OPEC to increase oil production.
Equities: Equites continued their strong run yesterday with several new highs in indices across the continent. Interesting to note best performing sectors on a day with new all-time highs being utilities and consumer staples. This is just very different from earlier this year when the cyclical sectors typically led the market on days when indices posted news highs. In a less bullish sign, large cap outperforming small cap and VIX ended the day 0.7 points higher. In the US, Dow +0.04%, S&P 500 +0.2%, Nasdaq +0.1% and Russell 2000 -0.7%. Risk sentiment a bit more negative this morning with most Asian markets lower, Hong Kong continuing to underperform with the Hang Seng index down almost 6% year to date. US futures are flat this morning while European futures are a little weaker.
FI: 10Y US Treasury yields moved modestly lower yesterday and the curves continue to flatten from the long end. Currently, it is a bullish flattening. The move is driven by a renewed decline in real yields from the long end of the inflation-linked curve. Here, the 25Y German real yield has declined almost 40bp from the start of October relative to a 5bp decline in a 30Y German government bond. However, the market is very much in a wait and see mode, and we expect to see modest movements in bond yields ahead of the ECB meeting on Thursday.
FX: EUR/USD dropped below 1.16 amid little news yesterday. EUR/GBP moved marginally lower but remains above 0.84. EUR/SEK and EUR/NOK moved sideways.
Credit: Yesterday was a particularly positive day for the high-beta segment of credit. iTraxx Xover tightened 6.5bp (to 254bp) and Main 1bp to 49bp. HY bonds tightened 3bp while IG was unchanged.
Nordic macro
The Swedish Debt Office presents a new budget forecast. In fact, throughout the pandemic, state finances have outperformed expectations. In the May-forecast the Debt Office projected a small deficit (4bn) this year and a 65bn surplus in 2022. However, since the latest forecast monthly budget data have come in 35bn better than forecasted, so another upward revision for 2021 and 2022 seems quite likely (a first 2023 estimate is also presented). In the meantime, the Debt Office has followed the standard procedure by scaling back short term funding. This time we believe that the new borrowing forecast will show a reduction also in long term (bond-) funding. Riksbank QE has created a gradual shortage of bonds (and hence a widening of ASW-spreads), a reduced supply from the Debt Office is not likely to help.
