Market movers today
- ISM Today: Markets continue to be driven by expectations of broad-based monetary policy tightening. Thus far, investors have pretty much ignored signals of the global recovery losing steam. Hence, we are curious to see how the markets react to US ISM Manufacturing release today (consensus 60.3 vs. prev. 61.1). We will also get October final manufacturing PMIs on individual countries in the euro area.
- US non-farm: This week’s most interesting data point will be the US non-farm payrolls on Friday, where all eyes will be on wage and jobs growth.
- Central bank activities continues: The week is loaded with central bank meetings with the RBA kicking it off on Tuesday, the NBP and the FOMC meetings on Wednesday, and the BOE and Norges Bank meetings on Thursday.
The 60 second overview
Japan: The ruling Liberal Democratic Party (LDP) held on to a majority in a surprisingly comfortable win at Sunday’s parliamentary election in Japan. The Nikkei index rose 2.25% this morning with the outlook for stable government over the next four years and more fiscal stimulus. USD/JPY is trading above 114 this morning amid a stronger USD.
FOMC meeting: This week’s main event will be the FOMC later this week. We expect the Fed will announce QE tapering and that the Fed will start tapering immediately with a tapering pace of USD15bn per month (completed in June). Risk is tilted towards a higher tapering pace of USD20bn per month. We expect Powell to repeat that the tapering decision is not related to a future decision on rate hikes. Still, we expect the rhetoric to be more hawkish than in September. Please note that the Fed policy announcement is 19:00 CET (as the EU has switched to winter time this Saturday). The press conference starts 19:30 CET.
G20 meeting: The G20 meeting agreed on a climate deal this weekend. However, it fell short of expectations especially in respect of phasing out the use of coals. The agreed to end financing of coal power, but fell short to phase it out it their own countries. G20 did commit to limit global warning to 1.5% as agreed in the Paris agreement.
COP26: The 26th Conference of the Parties, will kicked off yesterday in Glasgow. The expectation is for both more ambitious country-specific climate targets as well as global agreements on joint action, for instance, to phase-out fossil fuels, finance climate investments in developing countries and protect, restore and defend our ecosystems. Boris Johnson, the prime minister of UK, the host of COP26, has summarized the goals with the phrase “Coal, cars, cash and trees”. The G20 decision on coal will also be in focus and pressure for phasing out coal completely will be intense.
FI: The price action on Friday as markets digested the ECB meeting was similar to the expected reaction upon end of net asset purchases announcement. Inflation swaps (5y5y eur) had essentially its worst day since 2011 (similar reacting was recorded once in June 2018), front end repriced higher with now a 10bp ECB rate ECB in July next year and 20bp in October 2022, and spreads widened significantly. The sub 2y has been very vulnerable in the past days with 18m1m €STR up by 17bp since Wednesday. With ECB not wanting to push back, notably on the 2022 pricing, we see the front end near term left with global developments. We do not expect ECB GC members to push back just yet, due to their collective decision not to push back.
FX: NOK proved one of last week’s underperformers returning EUR/NOK to the mid- to high 9.70s. EUR/USD will likely head lower as we go through the coming quarters. For Sterling, focus turns to the BoE meeting.
Credit: Performance was mixed on Friday where iTraxx Xover widened almost 4bp and Main 0.7bp. HY bonds closed unchanged and IG ended 0.5bp tighter.
Equities: Equities finished October on a strong as US stocks once again led market higher. Nasdaq posted fresh record closes and capped their fourth-straight week of gains. Growth outperformed value for the fifth consecutive day, bringing the outperformance last week close to 2%.
In US, Dow +0.3%, S&P 500 +0.2%, Nasdaq +0.3% and Russell 2000 -0.03%.
Positive sentiment continuing in Asia this morning led by Japanese stocks rising on back of the LDP win. European and US futures broadly higher this morning.