Market movers today
The most important data release of today will be the US September retail sales and industrial production. While higher gasoline prices likely lifted headline retail sales, declines in leading services sector indicators and early credit card data suggest that consumption growth has still slowed down from August. Consensus expects control group sales, which exclude the volatile car, gasoline, building material and restaurant sales, to have remained unchanged in nominal terms, which would imply contraction in real goods consumption volume.
Retail sales, industrial production and fixed investment data will also be released for China overnight alongside the Q3 GDP. Consensus expects GDP growth at 1.0% q/q, which would keep China on track to reach the official 5% growth target for 2023 as a whole.
On the side of leading indicators, German October ZEW index is due for release, and it is expected to signal still subdued investor sentiment.
From central banks, ECB’s de Guindos and Centeno as well as the Fed’s Williams, Bowman and Barkin will be on the wires.
The 60 second overview
US equity prices rose yesterday while bond prices fell/yields rose as the diplomatic efforts to stop an escalation of the conflict between Hamas and Israel continues. President Biden will travel to Israel in order for the crisis not to escalate. The US Treasury curve once again bear steepened, and US Treasury yields have risen modestly in Asian trading hours where Asian equity markets have followed the positive trend from US yesterday.
The oil price has remained stable, while gold prices have begun to decline after a solid rise when the conflict began last week.
There is again focus on the Chinese company Country Garden and the possibility of a USD-denominated bond that may default today.
ECB continues to be hawkish as both Lane and Lagarde have stated the ECB must act if inflation does not come down due to more shocks to inflation and keep an eye on oil prices given the potential inflation risk. Today, there are plenty of ECB speakers and the market will be watching for more comments on inflation and monetary policy.
Equities: Unusual trading occurred yesterday! Yields and equities were higher at the same time as earnings taking investors’ focus. Now, this is the typical behaviour; higher long-end yields, higher equities, but this relationship has been broken down since inflation emerged 2021. US closed up 1.1% and Europe 0.2%. Cyclicals outperformed, primarily consumer discretionary, communication and industrials, but all sectors were higher. Asian markets are higher this morning too, led by Japan, but US futures have dipped to negative.
FI: The US curve once again bear-steepened with 10Y Treasury yields rising some 8-9bp and 2Y Treasury yields rising 4bp. In the European markets there was a similar bear steepening with 2Y German yields rising 2bp and 10Y rising 4-5bp. However, the spread between Italian bonds and core-EGBs tightened despite the recent concerns over Italian government debt levels and a sustained rise in Italian yields above 5%.
FX: The latest IMM report (16 October) showed that JPY, AUD and CAD remain in stretched short territory and the recent days have not changed that as AUD/USD trades at 0.6350, USD/JPY is stuck in the mid 149s and USD/CAD remains above 1.36 this morning. EUR/USD has edged higher toward the 1.0550 area. NOK/SEK dropped below parity as EUR/SEK and EUR/NOK traded in opposite directions.
Credit: Yesterday, credit spreads were increasingly supported towards the end of the trading day by an underlying positive tone ahead of the Q3 earnings season, sending iTraxx Main 1.5bp tighter to close at 83.9bp, while Xover was tighter by 6bp to close at 445.6bp. The primary market activity was muted due to company black-out prior to reporting.