Market movers today
The markets’ focus today will be on US data releases. The ISM Manufacturing index for December is expected to fall further into recessionary territory to 48.5 from 49.0 in November. Also, consensus expects the job openings for November to reflect a gradual cooling off in the US labour market. Consensus looks for the weakest reading since June 2021.
In Europe, following yesterday’s inflation data from Germany, today brings similar data for France ahead of the much expected euro area release on Friday.
Towards the evening, focus turns to the FOMC minutes from the December meeting which should shed more light on how the policymakers are weighing early signals of slowing inflation pressures against the persistently strong labour market data.
Overnight, we will also get the December Caixin Services PMI from China. Yesterday, we updated our outlook for the Chinese economy and in the context of reopening we now expect weaker GDP performance in the short term but a faster rebound starting already in February-March. Economic recovery in China will provide a positive tailwind for global growth but it could also fuel inflation. Read more on China Outlook: Earlier reopening to drive faster rebound.
The 60 second overview
German inflation: German CPI inflation fell back to 8.6% in December (from 10.0% in November). However, a government-backed discount to energy bills was an important driver for the deceleration in energy inflation (24.4% from 38.7% in Nov), and core inflation pressures continued to build. For ECB the figures hence give little respite on the inflation fighting front: the drop in energy inflation will likely revert in January/February, until the gas/electricity price brake takes effect, while a tight labour market continues to pose upside risks to wages.
China: Yesterday’s Caixin PMI manufacturing for December out of December not as bad as the release from NBS yesterday. Interestingly Taiwan PMI rebounded in December from 41.6 to 44.6. It tends to lead global PMI by a few months so indicates a bottom in late Q1. Is similar to signals from German ifo expectations, which is also a good indicator for the global cycle leading by some months. The level is still low, though, and points to manufacturing recession.
Europe is set to unify its approach towards China and the covid outbreak, which may include mandatory testing.
Credit: The credit market saw decent performance yesterday with spreads as measured by iTraxx Main tightening by 2bp to 89bp, while Xover was tighter by 12bp to 474bp compared to Friday’s close. With UK and US investors back from holiday, issuers seemed keen to make early progress on their funding plans and primary market activity picked up noticeably. In financial senior space alone more than EUR10bn was printed and the AT1 segment also saw issuance. Despite the flurry of deals coming to the market, supply was overall well absorbed by investors.
FI: European rates extended its performance from Monday into yesterday. Supported by lower than expected headline inflation from Germany, rates ended some 6bp lower on the day, with the bulk of the rally recorded in the morning session as it became visible that the German government subsidies dragged the headline lower. That said, there was no relief for the core inflation which mostly ticked up across the regional states which means ECB will continue to strike a hawks tone. Intra euro area spreads were mostly unchanged on the day.
FX: Broad-based dollar recovery which sent EUR/USD 1.5 big figure lower and the cross rounded off the US session well below 1.06. EUR/SEK relatively stable within 10.11-10.16, whereas USD/SEK climbed above 10.50 and thus traded at its highest level in more than a month. NOK sold off more broadly with EUR/NOK breaching 10.60.
