Market movers today
Today, focus shifts from central banks to economic outlook as we get the latest activity signals from Europe and the US in the form of PMIs.
In August, the euro area PMI print surprised negatively with the service sector falling into contractionary territory for the first time this year indicating that the entire economy is contracting. The weak August print came on top of the already negative July print that surprised markets. We expect to see some stabilisation in the September print given the large declines in the previous months. We look out for the sub-components of employment that indicated that aggregate employment growth was close to a stall in August. The price sub-components will also be closely watched as the service sector is still recording higher prices while goods prices are falling.
In the US, we expect modest weakening driven by the services component. August data has been rather mixed so far, with for example ISM surprising to the upside while retail sales already reflected weaker consumption.
We also have a few ECB and Fed speakers on the wires.
The 60 second overview
Japan: The Bank of Japan kept monetary policy unchanged as expected, including keeping the yield curve control policy. Inflation in Japan did not drop as expected in August. Headline inflation was 3.2% y/y and core inflation 4.3%. PMIs indicate that economic activity slowed further in September. Manufacturing PMI declined to 48.6 and the service PMI to 53.3.
Central banks: Bank of England and the Swiss National Bank surprised us and the market by refraining from raising interest rates further yesterday. The Riksbank and Norges Bank both hiked policy rates 25bp. While the door is still open for more hikes from all four, we think they are all done increasing interest rates.
Oil: The rally in oil prices came to a halt with the price on Brent crude stabilising for now around the USD93-94/bbl level. Prices have come a long way on the back of tighter supply, but negative risk sentiment in global financial markets and a stronger USD may start to weigh on oil demand. In addition, the release of flash PMIs today may put focus back on weakening global growth.
Equities: It was a broad risk-off session amid more hawkish takeaways from the FOMC meeting, which overshadowed the overall dovish rate decisions yesterday. As such, equities were lower on Thursday, with Europe and US selling off 1-2%. The value outperformance was sharp. Value outperformed growth by almost a full percentage yesterday, and a full 2% for the week globally. While it was a risk-off session in the US with all sectors lower, Nordics were more of a rotation story with banks rising at the expense of tech and industrials. Asian equities and especially tech are rebounding this morning. The only exception is Japan, where market is somewhat lower on an unchanged rate decision from the Bank of Japan but higher inflation and weaker PMIs than expected. US futures are a tad higher too.
FI: It was a very mixed picture in the global bond markets after yesterday’s monetary policy meetings in UK, Switzerland, Sweden and Norway. Bank of England and SNB kept rates on hold contrary to expectations, while Norway and Sweden raised rates with 25bp as expected and signalled more could come before pausing.
Hence, the Norwegian curve saw a very bearish flattening, while UK and Switzerland saw steepening, where rates rose in the UK while declining in Switzerland. Swedish bond yields rose across the curve. In the US, there was a very bearish steepening of the curve, where 10Y Treasuries rose to 4.5%, the highest level since 2007
FX: EUR/USD has remained range-bound around following the week’s Fed decision. USD/JPY rose above 148 once more on slightly dovish comments from the Bank of Japan. Both GBP and CHF weakened on unchanged policy decisions from respective central banks, however the latter retraced some of the move during the day. Volatile trading in Scandies following yesterday’s policy decisions, but both closed the day close to unchanged.
Credit: On the back of the hawkish pause announced by the Fed on Wednesday, the credit markets were in risk-off mode yesterday. This left iTraxx main 2.9bp wider to 77.5bp and Xover 13.3bp wider to 419bp.