Market movers today
- Today’s highlight will be the US PCE data. The inflation part of it is not so interesting given we already got CPI statistics two weeks ago, but instead, the monthly private consumption data is the one to watch. Considering the strong retail sales data, we could expect goods consumption to remain elevated.
- We will keep an eye on ECB Schnabel’s speech this afternoon after her hawkish comments yesterday saying inflation risks are skewed to the upside.
- We will also pay attention to any signals from Turkish officials on a potential intervention on lira after the currency’s freefall yesterday.
- We expect the FOMC minutes this evening to be a non-event for markets since several FOMC policymakers have spoken since the meeting.
The 60 second overview
Oil prices have extended gains overnight after announcements by the US and other nations on a coordinated release of strategic oil reserves fell short of market expectations. Brent is trading at above 82 USD/barrel at the time of writing. The US said it would release 50M barrels of oil over the coming months, corresponding roughly to 2.5 days of domestic consumption. India said it would release 5M barrels and UK 1.5M barrels. South Korea has indicated a contribution of 3.5M, while according to Nikkei, Japan would release around 4.2M. China’s contribution has not been confirmed but according to officials close to talks it could be in the range of 7-15M. All eyes are now on OPEC ahead of their monthly meeting next week, as the group has said earlier that they consider a release from strategic reserves unjustified by market conditions and could respond by reconsidering plans to add supply to the market.
The Reserve Bank of New Zealand hiked rates by 25bp to 0.75% this morning, in line with consensus expectations. The kiwi weakened 0.5% after the decision as some analysts were expecting an even larger hike.
November flash PMIs yesterday indicated resilience in economic activity but higher inflation pressures, though the picture was a bit mixed in the euro area compared to the US. In euro area, French and German PMIs both signalled an improvement in activity after a period of declines, with particularly the service sector advancing, while long delivery times and higher input costs continued to weigh on manufacturers. As a signal of rising inflation pressures, selling price inflation accelerated to the fastest in euro area fastest in almost two decades as firms sought to pass higher costs on to customers. In the US, service sector fared worse than expected, delivery times improved slightly but inflation pressures remained elevated.
Equities: A rollercoaster ride in equities yesterday resulted in declines as European performance dragged down overall performance. On the surface, it could look like a classic risk-off sentiment with VIX higher, large cap outperforming small cap and defensives outperforming cyclicals. However, the moves we saw yesterday come down to inflation concerns and rising bonds yields. Hence, value outperforming defensives and energy, banks and materials being the best performing sectors. We would not have seen this if investors had tuned in at full risk-off mode. In the US equities ended mixed but way off day lows with growth intense indices suffering. Dow +0.6%, S&P 500 +0.2%, Nasdaq -0.5% and Russell 2000 -0.2%. Asian stocks are mostly lower today but for a change dragged down by Japan despite some relatively solid macro data out this morning. US and European futures slightly negative.
FI: A strong sell-off in European fixed income markets all through yesterday’s trading session, continuing Monday’s sell-off. Schnabel’s hawkish comments with upside risks to inflation, strong preliminary PMIs from France, Germany and the Euro Area as well as Villeroy’s comment on ‘Increasing … APP … is at this stage a possibility, but not yet a necessity’ drove core European yields 8bp higher (10y point), in a bearish curve steepening of the curves. Spreads widening slightly in the periphery after BTPs-Bund spreads took a strong beating on Monday, now leaving the spread at 128bp.
FX: EUR/USD traded sideways still above 1.12 yesterday, while EUR/GBP moved back above 0.84 amid overall risk-off sentiment. EUR/NOK moved lower now trading closer to 10.00 on a smaller-than-expected draw on US strategic oil reserves. USD/TRY rose more than 10% yesterday.
Credit: CDS indices were under heavy pressure yesterday where iTraxx Xover widened 6.6bp and Main 1.2bp. Cash bonds were not in demand either, but were much less affected, with HY and IG bonds selling off a more modest 1bp and 0.5bp, respectively.
The main event in Sweden today is the parliamentary voting on Social Democrats (S) new chairman Magdalena Andersson getting sufficient support to become new Prime Minister (09.00 CET). Although most likely, this is still not 100% certain. At 16.00 CET there is a budget voting. The basic budget proposal is NOT from the government S/Greens but rather from the right-wing opposition i.e. Conservatives, Christian Democrats and Sweden Democrats. It could end up in a situation with a red/green government ruling a right-wing budget. It has happened twice before over the past eight years.