Market movers today
This is a very quiet day in terms of data releases but we do get September industrial production data from Sweden in the morning. In the central bank calendar, we have ECB’s Elderson and Fed’s Williams and Barkin scheduled.
The European Commission will publish a first draft proposal on EU fiscal rules reform, which aims to give individual countries a bigger say in their debt reduction plans, while also strengthening enforcement rules.
Otherwise, the markets will be digesting the results from the US midterm election.
The 60 second overview
US midterms: While votes are still being counted, exit polls suggest that republicans are the favourites to win control of the House of Representatives, while the Senate race is still too tight to call. At the time of writing, results received so far indicate that the Democratic Party has been able to flip one seat in senate in Pennsylvania. Focus remains on results for Georgia, Wisconsin and Nevada. Focus remains on results for Georgia, Wisconsin, Nevada and Pennsylvania. The race for the house has also turned out to be tighter than expected. It might take days or even weeks until the final results are confirmed especially for the Senate. In Georgia, the final senate result could require a run-off election at a later date if neither Democratic nor Republican candidate manages to secure at least 50% of votes (as was the case in 2020).
Markets have remained calm overnight, as a divided government with republicans controlling at least the house still seems like the most likely outcome – in line with what prediction markets expected ahead of the election. Both parties would have limited chances to push forward major legislative changes, and the next focus points would be the discussions on the government debt ceiling and further support for Ukraine. The former provides the likely republican lower chamber some leverage in pushing forwards their initiatives, as failing to increase the debt ceiling could result in US government defaulting on its debt. Republican Party’s focus has been on cost cuts, especially on social security and medicare. Aid to Ukraine has also been discussed ahead of the election, and while we think an abrupt cut-off of all support seems unlikely given the bipartisan approval of past packages, it remains a key question from European perspective given that US has clearly been the most important supporter of Ukraine so far during the war.
China: Chinese producer prices declined in y/y terms for the first time since December 2020 (-1.3%), which is a clear sign that price pressure on goods stemming from high commodity prices is easing. The rally in Chinese equities has taken a breather early this week, as officials have pushed back on rumours of easing Covid-policies and new infections have climbed higher especially in the manufacturing hub of Guangzhou.
Equities: Equities continued its solid march higher. Cyclicals and especially growth cyclicals took the lead. A great proxy for this change in sentiment is Storskogen, up 11% yesterday. It was also a good day for Nordic consumer discretionary as both Boozt and Pandora beat earnings expectations. On the other side of the Atlantic, S&P500 closed up 0.6% with materials in the lead. Futures slightly lower today.
FI: European rates rallied markedly in the afternoon on no apparent news or headline. 10y German yields ended 6bp lower on the day, amid general intra-euro area spread tightening (Italian-German yield spread tightened 3bp to 210bp).
FX: We see a notable gap between our short-term regression models for EUR/NOK and USD/NOK to actual spot levels with fair-value estimates of 10.44 and 10.80, respectively. While we never base recommendation on these models alone they have historically proven reliable cross checks as to when correction opportunities have arisen. EUR/DKK dropped below 7.4400 this week and towards the 7.4360-65 low. We expect Danmarks Nationalbank (DN) to maintain the floor around this level and another DKK20-30bn of FX intervention selling would trigger a further widening of the spread to ECB’s policy rate.
Credit: Mirroring the overall positive sentiment yesterday, the credit markets continued to see tightening in CDS indices. iTraxx Main closed the day 1.8bp lower at 105.2bp, while iTraxx Xover was 4.1bp lower at 515.6bp. The primary market continued the constructive tone with numerous new deals.
Nordic macro
Sweden: Statistics Sweden releases September consumption indicator and the production value index (PVI). Both are of less importance this time as the GDP indicators for both September and Q3 have already been released. There is some interest mainly in how in particular the services components cope in the consumption indicator as we have already seen retail trade declining by more than 5 % yoy on the back of a worsening economy.
Norway: In Norway, keep an eye on job vacancies, which hit record levels in Q2. The labour market still seems to be tight, but the number of new job openings has begun to come down. We may therefore see a moderate fall in the total number of vacancies in Q3. In addition, we get employment and wage figures for Q3.
