Thu, Dec 01, 2022 @ 14:33 GMT
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Global Manufacturing Slowdown

Market movers today

Manufacturing PMIs for August are released in a range of countries. We expect a further drop in Swedish PMI manufacturing from July’s 53.1 in line with the drop in the euro area flash PMIs.

In the US, ISM manufacturing for August should probably remain above 50, although PMIs have pointed to downside risks.

German retail sales for July will give further insights into how consumers adjust spending in light of higher prices, since the last two months have already shown increasing signs of weakness in retail spending.

In Norway it will be very interesting to see whether the labour market is cooling or tightening further, while we look for a moderate fall in PMI manufacturing to 52.5.

The 60 second overview

European inflation: Euro area inflation took another leg higher, as October HICP inflation reached 9.1%, driven by core inflation and food. With higher gas and electricity prices yet to fully feed through to consumer prices, we doubt that we have seen the inflation peak in the euro area yet and overall yesterday’s figures strengthen the case for a 75bp hike from ECB next week.

Asian manufacturing is slowing. Chinese private Caixin PMIs declined to 49.5 in August from 50.4 in July, short of expectations, confirming the slowdown from the official reading on Wednesday. Also Korean PMIs fell further below into contractionary territory to 47.6 while export growth slowed in August. Taiwan slowed even more to 42.7. ASEAN production on the other hand remained solid with still above 50 readings in Indonesia, the Philippines, Thailand and Malaysia.

Equities: Global equities lower again yesterday with broad based declines. However, we are starting to see a shift in the narrative as the inverse relationship between oil price and equities, or simply the energy sector versus the rest turning around. The last two days we have seen oil price down and equity markets lower. This for us suggests the market narrative is increasingly moving away from the oil-driven inflation fear of central banks tightening the global economy into recession. This fits well with the “Volcker message” we have received lately from Fed, ECB and BoE. In US yesterday indices ended at worst levels and unable to sustain an early rally for the third-straight time this week. With the move this morning, the S&P future is down close to 10%(!) from the peak just two weeks ago. Yesterday, Dow -0.9%, S&P 500 -0.8%, Nasdaq -0.6% and Russell 2000 -0.6%. Asian markets mostly lower this morning after some mixed PMIs. US and European futures down this morning led by the Nasdaq future, which is down 1.2% at time of writing.

FI: Global bond yields rose modestly yesterday and European yield curves flattened between 2Y and 10Y as well as 10Y and 30Y. We are now pricing in 75bp rate hike by the ECB after a string of comments during the Jackson Hole symposium during the weekend as well as comments this week from a string of ECB officials.

FX: Scandies dropped yesterday and in particular NOK was hit hard with EUR/NOK rising close to 10.00 level. EUR/USD was steady around parity and USD/JPY held close to 139 level.

Credit: Credit markets remained under pressure yesterday where iTraxx Xover closed 7bp wider in 588bp and Main 1bp wider in 119.5bp. The indices are now just 38bp and 7bp, respectively, from their 2022 highs.

Nordic macro

Much of the reason for Norges Bank’s more aggressive tone recently has to do with high capacity utilisation and a tight labour market increasing the risk of high energy prices triggering a wage-price spiral. It will therefore be very interesting to see whether the labour market is cooling or tightening further. The first sign will be if the number of vacancies has peaked, as the monthly figures for new vacancies seem to suggest. Today also brings PMI data for August. We expect a moderate fall to around 52.5, partly because we have seen the new orders index dropping in recent months.

Danske Bank
Danske Bank
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