Market movers today
This week starts off with thin calendar in terms of data releases. In Germany, we receive the Ifo indicator for September. The assessment of the current climate has declined continuously since March and it will likely tick lower again. Expectations have stabilised in recent months, and it will be interesting to see if they actually increase a bit, which is what consensus is looking for.
The 60 second overview
We have seen modest moves in the global bond and equity markets this morning. US Treasury yields rose very modestly from the long end of the curve. There have also been modest declines in the Asian equity markets this morning where the Chinese equity market is under pressure given the uncertainty surrounding the Chinese property market.
The main event today is the release of the German IFO indicator for September. We also get PPI from Finland and Spain and there are several ECB speeches from Villeroy, Schabel and Lagarde.
The main event this week will be the inflation data from US and Euroland released on Friday. A downside surprise will be supportive for the bond market as the market will again speculate in faster rate cuts than is currently priced in after last week’s central bank meetings where especially the Federal Reserve indicated “higher for longer” and the market priced out rate cuts and Treasury yields rose. However, with 2Y yields higher than 5%, short-dated bonds look attractive from the outright perspective.
Equities: Global equities were lower on Friday and hence failed to recover the lost ground from Thursday. Hence last week equities were lower 5 out of 5 days and the higher for longer narrative was dominating. This picture was confirmed by the style rotation with value and Min Vol doing good and VIX creeping higher. Higher-for-longer was driven by central banks and not least the updated summary of economic projections from Fed members. Inflation numbers were benign last week and oil prices were lower. Higher-for-longer is not just a drag on the economy but is also leading to new discussions on the level of discounting factor and leading to long duration small caps underperforming. On Friday in the US, Dow -0.3%, S&P 500 -0.2%, Nasdaq -0.1% and Russell 2000 -0.3%. Asian markets are mixed this morning with Japan outperforming once again. European futures are lower while US futures are higher.
FI: Last week was busy with several central bank meetings. One common theme was “higher for longer” as rate cuts are not coming in as fast as previously expected especially in the US, and 10Y US Treasury yields have risen some 19bp during the week before declining 6bp on Friday. If the inflation data published on Friday surprises on the downside it should lead to a decline in yields and rates.
FX: After a hectic central bank week, EUR/USD consolidates around 1.0650 following the Fed-induced one-figure drop. GBP/USD continues its downward trajectory following the dovish surprise from BoE. The JPY remains under pressure after BoJ left ultra-easy monetary policy unchanged. Both SEK and NOK are modestly stronger vs EUR after the Riksbank’s marginally dovish rate path was effectively balanced by the decision to start hedging the FX reserves and Norges Bank left a hawkish surprise in its rate trajectory. This week has a lot to offer as well including US and EA inflation numbers and interesting central bank speeches.
Credit: The credit markets ended the week on a marginally stronger footing with iTraxx main tightening 0.2bp to 77.3bp and Xover tightening 2.4bp to 416.7bp. We expect a revival of the primary markets in the coming weeks with the central bank rate decisions now out of the way and ahead of the black-out periods.
This week, August data in the form of PPI, trade balance, household lending and retail sales will be released and the implications for Q3 GDP assessed. Selling price expectations will be in focus what concerns the September confidence survey. Riksbank’s Jansson and Flodén will be talking about current monetary policy.