Market movers today
Apart from the industrial production data from Denmark, data calendar is empty for today. Industrial production in Denmark has impressed throughout 2022, and has so far not shown any persistent signs of weakness. Nevertheless, many companies are beginning to report a downturn, with the latest business confidence figures clearly showing industry in retreat in Q4 22. We also expect that manufacturing will be increasingly affected by the slowdown.
ECB’s Lagarde, de Cos and Villeroy are scheduled to speak.
The 60 second overview
Market sentiment: Easing pandemic curbs and global recession fears continue to drive the markets. Stocks in Hong Kong are rallying after media reports that mask-wearing requirements would be removed. Elsewhere in Asia sentiment is more wary and European stock futures are on red while the euro is slightly weaker against the dollar. We maintain our call for a weaker EUR/USD next year in the context of diverging paths of recovery from the upcoming recession and Europe’s long-term energy pains.
Bank of Canada: Yesterday Bank of Canada hiked policy rates by 50bp in a decision widely anticipated with both markets and analysts split between 25bp and 50bp. Meanwhile, the sentence “Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target” clearly indicated that Bank of Canada is contemplating whether the peak in policy rates has now been reached. Also prior to this meeting we pencilled in this 50bp to be the last hike in the cycle; we maintain that call. This was an interim meeting with little other news than the regular press statement. The next Bank of Canada monetary policy decision is in late January next year. The initial rally in CAD FX and rise in CAD rates was quick to reverse as markets digested the fairly soft forward guidance. The drop in oil only contributed to the reversal.
Russia: In a televised address yesterday, Russian president Vladimir Putin acknowledged for the first time that his war is likely to become a long one. He also said that the risk of nuclear war was growing, contradicting comments released yesterday by German Chancellor Olaf Scholz who said that the risk of Putin resorting to nuclear weapons had decreased due to international pressure. Putin denied his government would be planning additional mobilization (but note: he also denied they were planning a mobilization just one week before they announced the partial mobilization on September 21st). Putin continues to claim their operation has achieved “significant result”. Same time on the ground, in a further showcase of their tactical superiority and capabilities, Ukraine has been able to strike Russian military bases deep in Russian territory using drones. Winter is likely to play for Russia’s benefit though, as Kyiv’s Mayor Vitali Klitschko told yesterday that the city could be left without central heating at a time when temperatures fall as low as -15 Celsius. Also yesterday, the EU announced a ninth round of sanctions against Russia, including restrictions on access to drones, chemicals and technologies used for military purposes.
China sanctions: The Netherlands is said to be contemplating similar sanctions for chipmakers in China as those imposed by the US. Outside the US and in line with Japan, Netherlands is one of the largest suppliers of machinery and know-how needed to make advanced semi-conductors.
FI: Since the start of the week, volatility in euro rates markets has been relatively low compared to recent months as we await the major central bank meetings next week. Yesterday, rates traded in a tight range with 10y German Bunds ending 1bp lower on the day at 1.77% amid minor peripheral spread tightening. Bank of Canada raised its policy rate by 50bp, and the associated statement sent signals that this may have been the final rate hike from BoC for now. European rates recorded a minor reaction on the news, while Canadian swap rates ended just 5bp lower across most maturities.
FX: Relatively steady FX markets yesterday where bond yields and oil price dropped further. EUR/USD traded close to 1.05 and USD/JPY around 136. In Scandies, EUR/SEK traded around the 10.90 level and EUR/NOK around the 10.50 level.
Credit: Credit markets were fairly stable on Wednesday but tilted slightly to the bearish side. iTraxx main widened 0.2bp to close at 91.4bp, while iTraxx Xover widened 0.9bp to close at 465.8bp. Primary markets saw decent activity and even allowed high yield issuers such as Iliad (BB) and Intrum (BB/Ba3), among others, to print at decent spreads.
