Market movers today
Data calendar for today is almost empty for main markets, only German IFO index for October due.
In Sweden, September PPI index will be released.
Otherwise, we continue to keep a close eye on developments in Middle East before we tune in for the ECB meeting on Thursday.
The 60 second overview
Markets: Equities halted a five-day decline as improved earnings reports and a calmer bond market spurred broad gains. The S&P 500 saw a 0.7% increase, with nearly every sector rising, while the tech-centric Nasdaq Composite gained 0.9%. The 10-year Treasury yield, which had surged to a 16-year high of over 5% on Monday, retraced to around 4.84%. European equities closed higher with STOXX600 rising 0.4%, despite the release of a gloomy report on the euro area economy. Elsewhere, EUR/USD ticked lower to 1.06 on the relatively stronger US PMI data. Oil prices ended lower for a third consecutive session as traders continued to monitor the conflict in the Middle East. Markets in Asia are mostly higher this morning as China has once again stepped up stimulus measures. European futures are higher while US futures are mixed with tech-heavy indices lower, driven by late hour earnings disappointments.
Euro area: Monetary policy tightening may be materialising in the euro area after yesterday’s weaker-than-expected PMI figures. The economic deterioration seems to be broad-based with both the manufacturing and service sector declining. The composite index stood at 46.5 (cons.: 47.4, prior: 47.2). The rate sensitive manufacturing sector declined for the seventh consecutive month to 43.0 (cons.: 43.7, prior: 43.4), while the service sector fell to 47.8 (cons.: 48.6, prior: 48.7). Overall, the euro area October PMIs signal that economy continued to cool in Q4, which is what the ECB wants, as both activity and prices fell thereby confirming the ‘soft landing narrative’. The labour market also cooled with the manufacturing sector recording the largest employment declines in three years while service sector employment almost stagnated. The risk for the soft-landing narrative is still that activity suddenly declines too fast. Currently, this risk is mainly present in the manufacturing sector that continues to be weaker than expected. New orders fell in both sectors, which signals further downside risks ahead. Hence, the economy is still cooling, but the continued weak manufacturing sector could quickly make the slowdown too fast for ECB’s comfort.
US: In the US, PMI composite recorded a reading of 51 (cons.: 50.0, prior: 50.2). Both manufacturing and services PMIs exceeded expectations. Manufacturing PMI reached 50 (cons.: 49.5, prior: 49.8), marking its highest level since April. Services PMI showed improvement as well, rising to 50.9 (cons.: 49.9, prior: 50.1). Overall, another upside surprise in US macro data, adding broad support to the USD. Details showed easing services sector price pressures and employment indices ticking modestly lower, which suggest easing price pressures, pointing to less need for Fed tightening.
UK: UK preliminary PMIs for October were slightly better than expected. Composite higher at 48.6 (cons: 48.5, prior: 48.5). Momentum in service sector continues to fade in line with the past months’ releases with September at 49.2 (cons: 49.3, prior: 49.3). Input price inflation meanwhile slowed for the third consecutive month in October and was the lowest since early 2021 and cost pressures overall seem to moderate. All indices remain below 50 and overall point to an increasingly gloomy growth outlook despite the slight upside surprise.
Equities: Global equities were higher yesterday, as yields were lower. The biggest drop in US yields was on Monday but still influenced cash equity trading on Tuesday. Macro data was not at all impressive and hence the bad-news-good-news for equities also still vibrant. It was not a massive rotation story yesterday since energy was the only outlier as oil prices lost a couple of percentage points. Earnings numbers were mixed yesterday both during trading hours and after the close of US cash trading. In US yesterday, Dow +0.6%, S&P 500 +0.7%, Nasdaq +0.9% and Russell 2000 +0.8%.
FI: Yesterday, European bonds partly caught up with the rally in US Treasuries late Monday. The quite significant yield declines seen in the morning were supported by the Eurozone PMIs coming out weaker than expected in October, and the Q3 ECB Bank Lending Survey showing renewed tightening of credit conditions among banks. The bond market rally lost some steam in the afternoon, though Bund yields ended the day 5bp lower across the curve. Long UST yields fell marginally throughout the day, while the short end of the curve rose following the surprisingly strong US PMI figures in the afternoon.
FX: After the almost one-figure increase in EUR/USD on the back of declining US yields, the cross declined to around the 1.06 mark yesterday. USD/JPY continues to trade just short of 150. EUR/GBP remains steady slightly above the 0.87 mark. The pressure on Scandies continued with EUR/SEK increasing above 11.75 and EUR/NOK surpassing 11.80.
Credit: Yesterday we saw a continuation of more supportive risk sentiment in the credit markets. Itraxx main tightened 1.6bp to 85.4bp while Xover tightened 8.5bp to 455bp. In spite of the strength in synthetic indices we continue to register weakness in cash bonds where the amount of sellers out-number the buyers, and where investors continue to fear negative fall-outs from the combination of high rates and the risk of a gloomy macro-economy in most jurisdictions.
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