Market movers today
- All eyes will be on US inflation for November. Core CPI surprised to the upside in October rising 0.6% m/m adding to inflation concerns. Consensus for November is 0.5% m/m on core CPI so another high print is built into expectations. The average of the past three months has been 0.3% m/m. On headline, CPI consensus looks for a rise to 6.8% y/y, which would be the highest inflation rate since 1982.
- We also get inflation in Norway, where we look for a rise in core inflation to 1.2% y/y in November from 0.9% y/y in October (in line with consensus), see more below.
The 60 second overview
The main event today is the US CPI data, where headline CPI is expected to increase to 6.8% y/y in November and core CPI is expected at 4.8% y/y. The comments from Fed Chairman Powell that inflation may not be as transitory as the Federal Reserve thought highlight the risk ahead of the FOMC meeting next week. The 30Y US Treasury auction also saw a modest demand at yesterday’s auction, where the bid-to-cover was 2.2, which is in the lower part of the range seen over the last five years.
However, on the other hand we have new variant of the coronavirus and the uncertainty regarding the efficiency of the vaccines as well as the uncertainty in the Chinese property sector where Evergrande and Kaisa real estate companies officially defaulted on their dollar debt. This has led to losses in Asian equity markets this morning across the region.
Equities: Equities fluctuated from gains to losses yesterday before ending close to day low for most indices. Underlying rotation very much risk-off alike with defensives outperforming cyclical, large-cap outperforming small and low vol stocks doing good. Consumer staples and health care the only two sectors higher while consumer discretionary and tech leading the sell-off. In the US; Dow 0.00%, S&P 500 -0.7%, Nasdaq -1.7% and Russell 2000 -2.3%. The negative sentiment continues this morning in Asia with all major indices lower. European futures also lower this morning while US futures are flat.
FI: There was a decent rally in the European fixed income markets yesterday driven by the 5Y to 10Y segments with German government bond yields declining some 4-5bp in the 10Y segment. 10Y Treasuries range-traded around the 1.5% level ahead of the US CPI data that will be released today.
FX: JPY, USD, GBP were top movers in G10 yesterday, where the NOK rebound also came to a halt. EUR/USD dropped back below 1.13 again, while EUR/NOK bounced above 10.10.
Credit: CDS indices performed decently yesterday while cash bonds were more stable. iTraxx Xover tightened 2bp (to 262bp) and Main 0.5bp (to 52.8bp). HY bonds closed 1bp wider and IG was unchanged.
Denmark. We expect November CPI inflation increased further to 3.2% as energy prices have continued to increase. We expect fuel and natural gas prices in particular will pull inflation higher, driven by a stronger dollar. Some district heating plants have announced price increases as well but usually, the bulk of it hits prices in January. The underlying price pressure has remained modest so far but we see businesses screaming for labour and supplies and thus it will be very interesting to see whether we finally begin to see core consumer prices move higher as well, like we have seen recently in the euro area. There is also an upside risk from the global surge in food prices over the summer, which has had limited impact on Danish food prices this far.
Norway. Inflation has slowed considerably since summer last year, driven by a stronger NOK and base effects. We believe that (core) inflation will now bottom out as both of these drivers fade or reverse. In line with consensus, we, therefore, expect core inflation to climb from 0.9% y/y in October to 1.2% y/y in November. The risk is increasing to the upside, because the strong growth in commodity and energy prices and freight costs will probably also push up consumer prices in Norway at some point.