Market movers today
ECB’s Lane speaks on “key factors of inflation and ECB’s response”.
Public holiday in Germany.
We will receive inflation data from Switzerland, but after last month’s surprise decision not to hike rates the release is unlikely to change the view that no more rate hikes are coming.
In Sweden, we get service PMIs, read more in the Nordic section below.
In the US, we get job openings, which is an important labour demand indicator for the Fed.
The Reserve Bank of New Zealand will announce its rate decision at 3.00 CET Wednesday.
The 60 second overview
Labour market: The euro area unemployment rate declined to a record-low 6.4% in August from 6.5% in July (revised up from 6.4%), highlighting the strength of the labour market this year. We still expect to see a slow and muted rise in unemployment going forward, though, in line with the weakening signals from the PMI employment figures in August and September.
US: The final PMI and ISM surveys painted a slightly more upbeat picture for US manufacturing in September. Leading new orders indices remain at contractionary levels (below 50), reflecting still weak consumer demand for manufactured goods. But as inventory levels are now declining faster than orders, production has slowly started to recover, which was evident in higher output and employment components driving the upticks in headline indices. That said, for inflation and the Fed, the development in the services sector matters more, and we continue to see weakening consumption growth towards the winter. The mixed outlook was reflected in yesterday’s Fed commentary as well. Bowman, who is among the most hawkish FOMC participants, stuck to her earlier view that rates would have to be hiked further. Barr, on the other hand, sounded more cautious saying that rates are ‘likely at or near sufficiently restrictive levels’. Powell did not touch on the monetary policy outlook in the roundtable discussion with Harker. Today’s main focus will be on the JOLTs Job Openings release, which is a key labour demand indicator for the Fed, and a decent leading indicator for wage growth. In addition, Cleveland Fed’s Mester (non-voter, hawk) and Atlanta Fed’s Bostic (non-voter, dove) will be on the wires discussing economic outlook.
RBA: As expected, the Reserve Bank of Australia kept rates unchanged at a meeting this morning, arguing that recent data was consistent with inflation returning to its 2-3 percent target over time with output and employment still growing.
Equities: Global equities had a tough day yesterday! At headline level the moves were not so bad with MSCI world down 0.2%. However, underneath there was a very interesting rotation with cyclicals outperforming defensives by more than 1% and growth outperforming value despite the yield curve across the western world moving higher. US tech outperformed while utilities got crushed and had the worst day since the Covid downturn. Fortum and not least Ørsted were part of the utility sell-off. Long duration small caps received the same treatment. Russell 2000 is down 12% since Aug-1st and is now lower for the year. Higher and steeper curve is a large part of the explanation but still not 100% descriptive of the rotation as banks underperformed in what should all else equal be a very benign environment for the sector. In the US, Dow -0.2%, S&P 500 +0.01%, Nasdaq +0.7% and Russell 2000 1.6%.
Asian still with markets close and celebration of Golden Week in China. Hong Kong open with Chinese H-shares down 3% and rest of the open markets lower as well. European and US futures lower but not to the same extend as the sell-off in Asia could suggest.
FI: The first trading day of the quarter ended with a strong sell-off driven by a combination of the higher-for-longer narrative and strong US data. 10y German bunds tested 2.92% which was about 7bp higher than Friday’s close. ECB’s de Guindos repeated the ECB guidance of no imminent rate cuts. On the question of MRR, de Guindos pushed back and said that ECB is not focusing on profit/loss of the central bank but on price stability. Similar to previous yield curve dynamics, the long end staged the sell-off with the 2s30s yield curve 8bp steeper on the day. Germany is out for a public holiday today.
FX: The first session of the week was characterised by a setback to European cyclically sensitive currencies such as SEK, GBP NOK and HUF while the USD and CAD were among the top-performers. EUR/USD has moved below the 1.05-level while EUR/NOK and EUR/SEK have rebounded to the high 11.30s and 11.50s, respectively.
Credit: Credit markets were negatively affected by the weak European equity markets on Monday. The primary market was also muted with limited activity. ITraxx Main was 2bp wider at 82bp while iTraxx Xover was 4bp wider at 438bp.
Nordic macro
PMI Manufacturing released yesterday was bleak, where four out of five sub-indices contributed to the decline in the PMI total for September to 43.3 compared to a downwardly revised 45.5 in August. Furthermore, Riksbank minutes were published yesterday. The SEK continues to be in focus (mentioned 43 times vs 44 in June), and especially with respect to the impact on inflation. Overall, as indicated in the rate path, the door is open for a possible hike in November as well (or even later according to the governor of the board, Erik Thedéen).
Looking forward, Service PMI may drop today. This would be a more stable development as it is hovering around the 50-point expansion threshold. Most interesting will be how the sub-index for suppliers’ input prices develop as the sticky service inflation was one of the main worries of the Riksbank’s board members in yesterday’s published minutes.
