Market movers today
- In Sweden, we expect November CPIF and CPIF excl. Energy to print 3.3 % yoy and 1.7 % yoy, respectively.
- In the US, the producer price inflation is more in focus than normally to gauge whether the strong inflation pressures in the US economy are starting to abate.
- The Hungarian central bank is expected to hike rates further by 40bps to 2.50% and hence continue its vivid hiking cycle which has been ongoing since May this year.
- Overnight we get Chinese industrial production and retail sales, which are expected to show a modest moderation in the growth rate relative to November last year.
The 60 second overview
Omicron concerns hit commodity prices: In commodities, crude oil extended a retreat in part on the possible obstacles to global reopening if omicron leads to wider mobility curbs. Other raw material prices also weakened, spurring declines in commodity currencies, led by the Australian dollar but also the Norwegian kroner got hit.
EU stand-off over rule of law issues: Yesterday, French president Emmanuel Macron met with leaders of Hungary, Poland and Czech Republic to discuss deep-seated issues relating to rule-of-law. The French president said after the meeting that he wants to move forward with resolving the stand-off with Poland and Hungary during the first half of next year, when France holds the rotating EU presidency through “dialogue”. However, postponing the issue until spring also raises the possibility that the EU Court of Justice will rule that the Eastern European countries need to adhere to the Rule-of-Law principles in order to receive EU funds, which have been held back unofficially by EU from these countries so far. The Polish and Hungarian currencies weakened on the back of the news (although also driven by weakening global risk sentiment).
Equities: Risk-off re-emerged on Monday, with equities lower and defensives beating the tape in a slow session. Yield curve flattening another theme for markets, but without the classic growth-vs-value trade emerging. Rate sensitive defensives the only winners, with health care, utilities, consumer staples and real estate higher. Tech, energy and consumer discretionary in the other end, selling off 2-3%. S&P500 closed down -0.9%, Dow -0.9%, Nasdaq -1.4% and Russell 2000 -1.4%. Asian markets are following the move lower this morning, with the Chinese property sector weighing on market sentiment. US futures have however turned slightly positive.
FI: Global bond yields continue to decline and the curves flatten ahead of the string of central bank meetings this week. At the same time, the break-even inflation (BEI) rates have declined as nominal yields have declined more than real yields. The 10Y US BEI rate has declined some 30bp since mid-November. In Europe the 10Y German BEI-rate has also declined since mid-November, but to a smaller extent and here both nominal and real rates have declined.
FX: Yesterday’s session was characterised by currencies that do well amid global curve flattening in the likes of USD, JPY and CHF. On the other hand, NOK suffered heavily from both the global environment and markets doubting Norges Bank’s signal of a rate hike on Thursday. That returned EUR/NOK back above 10.20. EUR/SEK was little changed and still trades in the mid-10.20s.
Credit: As was the case on Friday, CDS indices outperformed cash bonds yesterday. iTraxx Xover tightened 2.5bp (to 257bp) and Main 0.7bp (to 51.7bp). Both HY and IG bonds closed unchanged.
In Sweden, we expect November CPIF and CPIF excl. Energy to print 3.3 % yoy and 1.7 % yoy, respectively. That 0.1 p.p. above and 0.2 p.p. below Riksbank’s respective forecasts. Normally, core inflation falls slightly on a monthly basis in November, being pulled lower by international flight tickets and charter packages. This year, there is a risk of a slightly bigger drop as especially charter packages showed an unusually large increase in October. These price cuts are partially balanced by higher food and clothing prices. Hence, we expect core inflation to drop a tenth on a monthly basis. The tricky part these days, however, is to gauge the impact from energy prices and in particular electricity prices. Not only was the weather unusually cold in the last week of November, pushing the electricity price at the consumer level 7.0 % higher month on month, car fuel also continued to rise to record highs.