All Eyes on the US CPI

Market movers today

Today, all eyes will be on US October CPI print. We are looking for another high print at +0.7% m/m / +8.0% y/y.

October inflation data is also due in Norway and Denmark. We expect a decline in Danish CPI inflation in October to 9.2% from 10.0% in September. Electricity and natural gas prices have declined significantly, and fuel prices will likely pull inflation down as well. In Norway, inflation surprised to the upside once again in September. We reckon that inflationary pressures are still relatively strong as the economy continues to run above potential and firms are passing on large parts of their cost increases to customers.

On the central bank front, we have a bunch of policymakers both from the ECB and the Fed on the wires.

The 60 second overview

US politics: President Biden is said to announce his candidacy for the 2024 presidential election early next year. At the time of writing, the US mid-term elections are still undecided. The republicans have 206 seats of 218 needed for a majority in the House and leads for another 14. As regards the Senate, it’s a very close call as well. Both parties need to win two of three key states to win the majority.

Ukraine: Russian defence minister Shoigu ordered Russian troops to retreat from the Kherson city back to the Dnipro river, as the supply routes to the troops were difficult to sustain. This is yet an important milestone for the Ukrainians who have seen solid advancements since September.

EU fiscal: The EU Commission published a first proposal for overhauling the EU’s fiscal rules, which have over the years become ever more complex, poorly understood and patchily enforced. The overarching idea of the reform proposal is to allow countries to agree on more realistic debt-reduction paths with Brussels, while creating extra space for public investment, but also tighten enforcement of the rules. In detail the blueprint foresees: (1) a 4-year individual debt reduction plan for each country (2) EU countries can request a more gradual adjustment path lasting up to 7-years if needed for investments and reforms (3) countries would need to stick to annual ceilings for net primary public expenditure or face penalties; (4) fines would be set at more realistic levels and ‘reputational’ sanctions enhanced; (5) if countries fail to cure excessive deficits, their EU funding could be withheld.

Equities: Equities retreated lower on Tuesday. US equities sold off sharply throughout the session: S&P500 -2.1%, Dow -2%, Nasdaq -2.5% and Russell 2000 -2.7%. Huge sector dispersion with energy underperforming utilities by 4p.p. Growth cyclicals led the declines, but note that value cyclicals sold off sharply too. In other words, it was a risk-off session and not just positioning ahead of the CPI figure. VIX broke the downward decline and rose for a second day. US futures are slightly higher today.

FI: European rates staged a significant rally late in the afternoon amid geopolitical headlines of Russia leaving the Kherson region. While it is difficult to see such headline explaining the entire move there was no other market moving headlines that initialled the 10y German yield’s gradual decline of 10bp into the close. Spreads were virtually unchanged on the day, in a bullish flattening move. After the European close, the 10y US supply was not well received and 10y UST jumped 5bp. ECB market pricing now points to more likelihood of a 75bp rate hike in December.

FX: The setback to risk and not least the sharp drop in energy prices took its toll on NOK in yesterday’s session with EUR/NOK spiking back above 10.40. Some commentators indicate the large reversal in US equities (SPX -2% on the day) was also affected by a major sell-off in cryptocurrencies.

Credit: Credit markets were a little soft yesterday following two positive trading days. iTraxx Main was 2bp wider to 107.2bp while iTraxx Crossover was 7.5bp wider to 523.1bp. The new issue activity across the Eurobond market is still high, underpinned by Credit Suisse raising EUR3bn of new debt that was heavily oversubscribed.

Nordic macro

In Norway, inflation surprised to the upside once again in September, and we reckon that inflationary pressures are still relatively strong. The economy is still running above potential, and firms are passing on large parts of their cost increases to customers, as is being seen in supermarkets. Much of the remaining retail trade, on the other hand, is battling with much weaker demand and abnormally high stock levels. We reckon that core inflation will rise to 5.4% y/y, well below consensus of 5.6 %.

Danske Bank
Danske Bank
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