Market movers today
UK September CPI is due for release this morning, consensus expects core inflation to continue moderating to 6.0% in y/y terms after the downside surprise in August.
Final inflation data will also be released for euro area. We expect no major changes to the flash release, but the data will still shed some light on the details of what drove the downtick in core inflation.
A range of Fed speakers will be on the wires today, including Kashkari, Waller, Williams, Bowman and Harker.
Joe Biden will visit Israel today.
Overnight, Australian labour market data is due for release.
The 60 second overview
China: Chinese Q3 GDP beat expectations by growing 1.3% q/q (from 0.5% in Q2, consensus 1.0%). In September, the uptick in growth was driven especially by retail sales (5.5%; from 4.6%) while growth in industrial production (4.5%; from 4.5%) and fixed investments (3.1%; from 3.2%) remained more stable. Overall, it appears that the stimulus measures are finally starting to have an effect on the Chinese economy, which is now set to reach the central government’s 5% growth target for 2023. That said, the uncertainty related to the real estate sector will remain a drag for now, with one of China’s largest developers, Country Garden, having potentially defaulted on its USD bond coupon payment this morning (see Reuters).
US: Hard US macro data continued the streak of upside surprises yesterday, as retail sales grew by 0.7% in m/m SA in September (August revised higher to 0.8%). While gasoline prices provided a modest lift to sales, even the control group sales (which exclude volatile, car, gasoline, restaurants and building materials) grew by 0.6% m/m (August 0.2%; consensus 0.0%). As Core CPI grew by 0.3% in September, it looks like real consumption volume continued to grow, suggesting that the US economy has remained on a more solid footing than expected. Industrial production also surprised to the upside (0.3%; consensus 0.0%), although the uptick was compensated for by a downward revision to August data (0.0%; from 0.4%). In any case, US yields continued to edge higher yesterday, and while the Fed has communicated that it will most likely remain on hold at the November meeting two weeks from now, the market-implied probability of a final hike in December or January has now reached around 50%. We still stick to our long-held call that the Fed is likely already done hiking despite the recent positive data surprises.
Geopolitics: Tensions seem to be tightening on many fronts, and not least in Israel where Joe Biden is headed for a visit today. In the Nordics, Sweden reported yesterday that it is investigating damage to a telecom cable to Estonia. While the cause remains unknown for now, the timing and physical location of the damage were close to the Balticconnector gas pipeline between Finland and Estonia, which was last week reported to have been damaged likely from the outside (see Reuters). And on US-China relations, Biden administration announced a further tightening in microchip export controls yesterday, targeted at blocking China’s access to the most advanced chips used especially for AI solutions (see FT).
Equities: Good news was bad news when retail sales turned out better than expected. Equities were muted as a result, with S&P 500 and Stoxx 600 closing unchanged, off worst levels. As yields moved higher, value cyclicals outperformed (energy, materials, and financials) with rotation out of real estate and tech. The latter was a headwind after confirmation of additional restrictions on US exports on advanced chips from China. US futures are unchanged this morning and Asian markets lower.
FI: Global yields continued to move higher yesterday, following the release of stronger-than-expected US retail sales data. 10Y UST yields rose 13bp to 4.84%, the highest level since 2007, driving a renewed steepening of the 10s2s curve. In line with moves seen over the past month, real rates were the main driver of yesterday’s move, as long-term inflation expectations remained relatively unchanged. Markets are pricing in close to 15bp of additional policy tightening in the US until January, while the first full 25bp cut is now seen in June 2024. The sell-off was also visible in European bond markets, with the 10Y Bund yield rising nearly 10bp throughout the day.
FX: In Scandies space, EUR/DKK briefly rose above 7.4620 yesterday and thus broke the recent top from September. EUR/SEK oscillated within 11.51 and 11.56 as the Riksbank hearing provided no news for the markets and risk sentiment soured, where the latter helped push EUR/NOK closer to 11.60, the upper end of the recent range. In majors, EUR/USD moved higher but bounced at 1.059 before spending the Asian session around 1.0575. USD/JPY very briefly dropped below 149 yesterday but was not comfortable and soon tested 150. The CHF continues to trade on a strong note albeit seeing a slight correction from last week with EUR/CHF close to 0.95.
Credit: Yesterday, credit markets continued the cautious sentiment while global rates continued to move upwards across the curves, leaving CDS indices broadly unchanged with iTraxx Main (-0.4bp) at 83.5bp and iTraxx Xover (-0.6bp) at 445bp. In addition, the primary market activity was very subdued as the Q3 earning season kicks in.