Market movers today
In the UK, September inflation figures are released. We expect headline to increase by 0.2p.p to 10.1% yoy which would be 0.2 p.p above Bank of England’s (BoE) latest inflation forecast. We see a slightly smaller increase in core inflation to 6.4% yoy (from 6.3%). Markets are currently pricing in 300bp hikes from BoE until November next year, which we think is too aggressive. Today’s figures could however add further pressure on the current market pricing.
In the US, September Housing starts are expected to continue declining following the weak NAHB housing market indicator released yesterday, which fell to the lowest level since May 2020.
Fed’s Kashkari and Evans will be on the wires. This week’s speeches mark the final communication from the Fed before the blackout period begins on Saturday ahead of the November meeting.
Overnight, Australian labour market data is released, key info for the Reserve Bank of Australia.
The 60 second overview
Macro: German ZEW expectations showed a small rebound amid less gloomy outlook on energy markets. The current situation assessment declined in October, though. Overall, ZEW still provides a clear recession signal and sets the scene for another round of weaker PMIs for October.
Bank of England: The FT story from yesterday is “inaccurate”, according to a spokesperson from BoE. That is, the BoE had not decided to delay sales of government bonds. Later, BoE pushed the date one day forward to 1 November due to fiscal announcements on 31 October.
China: Data releases in China on GDP etc. have been postponed until after the Congress of the Communist Party (CPC). It seems CPC wants full attention on the Congress, but it sends a signal that the data are probably not great.
Energy: Brent crude oil traded below USD90 per barrel yesterday not least on the postponement of (potentially weak) data, from the world’s top crude oil importer, China. Reports that the US will continue releasing oil reserves was another factor. Today, President Biden will announce the sale of an additional 15 million barrels in December. In Europe, natural gas prices remain around EUR60 per MwH, the lowest levels in more than a year.
Equities continued the rebound but lost some of its steam. US indices closed up 1%. Risk on, but this time with value cyclicals outperforming, such as industrials and materials. VIX has moved lower over the past week, but only mildly so and is still way above 30. This is an example of the positioning tailwind driving this rebound. US futures are 1% higher this morning too.
FI: It was a volatile session with the new 7y German bond sale barely oversubscribed at only 1.04x. Hawkish comments from Villeroy in the morning superseded the UK developments but in the end, UK was yet again the catalyst for most directional moves in Euro space.
FX: Energy importing currencies in EUR, CZK and PLN had a strong session yesterday only surpassed by the spike in NZD as a consequence of higher-than-expected inflation. GBP, ZAR and NOK all traded on the back foot while USD/JPY continues to edge higher. USD/CNY hovers just around 7.20.
Credit: Credit markets had a slightly positive tone – supported by a general risk-on sentiment. That said, the level of turn-over in the corporate bond market was still relatively low. During Tuesday, the iTraxx main tightened marginally to 125bp while Xover tightened 5bp to 599bp.
