Market movers today
Today’s highlight will be the US jobs report. Consensus is looking for some easing in employment growth (NFP +250k), but given the strength of the recent leading indicators, we continue to see modest upside risks to this (280k). Focus also on labour force participation and wage inflation.
German industrial production for August is expected to show contraction for a second month in a row. IP statistics are also due for Denmark and Norway, and the latter publishes GDP data for August. After surprisingly weak numbers over the summer, we anticipate a moderate improvement in August, with mainland GDP growing 0.4% m/m, thanks partly to slightly stronger growth in consumption.
Also, the energy crunch and its impact on the region’s economy as well as Russia’s war in Ukraine are set to be top issues at an informal meeting of EU leaders in Prague today.
The 60 second overview
Fed: Fed officials all voiced hawkish views yesterday, with Kashkari, Cook and Waller indicating that they are some time away from pausing rate hikes. Evans said they will probably be at 4.5-4.75% by next spring. Bank of Canada said similar things as ‘more to be done’ to address the inflation pressure and that they are not ready for a ‘more fine balanced’ rate policy.
ECB minutes did not contain new policy signals, although the minutes were slightly on the dovish side compared to recent communication. Most interestingly, ‘some’ members expressed preference for 50bp. 25bp was clearly insufficient. ‘All members joined a consensus’ 75bp. There was no commitment to a 75bp hike at the October meeting, as we expect and markets largely price, yet the data-dependent and meeting-by-meeting approach was stressed.
China: We are hosting a webinar on 9 November on the main takeaways from the China’s 20th CPC Congress, which will be held on 16 October and last for about a week. We will look into political as well as economic take-aways from the Congress and not least whether there is any indication of when China will move away from the zero-covid policy.
Euro area retail sales were down 0.3% m/m in August and the July figure was also revised lower. Overall, real spending continues to trend down, especially for food products. At the same time, consumption is still showing some resilience – despite record-high inflation pressures – and is not falling off a cliff as consumer confidence might have suggested. That is probably also due to fiscal support measures and some households still not yet having received their higher energy bills.
Equities: Equities retreated on Thursday in an uneventful session. However, investors did not shift back to risk-off: Instead, the cyclical- and growth/quality preference continued. Communications, consumer discretionary and tech outperformed, but nothing like energy that rallied another 2%. S&P500 -1%, Dow -1.2%, Nasdaq -0.7% and Russell 2000 -0.6%. US futures slightly lower this morning too.
FI: For once, European markets saw relatively muted price action yesterday compared to the past two weeks with Bunds only trading in a 10.8bp low/high range. ECB minutes did not contain significant policy signals. Spreads were trading in a tight range as well. BoE resumed its purchases (albeit of just GBP 154m) after two days of not buying as part of their temporary QE. Gilts have been under pressure, however the pace of the sell-off is not as concerning as last week’s. Fitch confirmed UK’s rating at AA but revised its outlook to negative from stable.
FX: USD continues to re-gain ground as the positive cross-asset momentum fades and yields rebound higher. Equally, NOK negative news flows should contribute to keeping NOK under pressure in Q4 – not least if we are right in a global environment characterised by tighter financial conditions. For EUR/CHF, data showed a substantial drop in CHF sight deposits but we do not view this as SNB intervening in favour of CHF.
Credit: Following a period of very large moves in spreads, volatility declined yesterday where iTraxx Xover widened 6bp while Main widened less than 1bp.
In Sweden, the September budget balance is due to be released today. A small deficit of SEK 2.5bn is projected by the Debt Office. However, since the May forecast the outcome has been SEK 30bn better than expected, probably mainly due to the soaring electricity capacity fees pouring into the national grid operator. Hence, in our view it would not be a surprise to see another significant surplus outcome.
After surprisingly weak numbers over the summer, we expect a moderate improvement in mainland GDP in August, up 0.4% m/m. The risk is actually tilted to the upside, but leading indicators nevertheless clearly point to a slowdown going forward.