Market movers today
Joe Biden and Xi Jinpeng meet in San Francisco.
US retail sales will be the first hard data point on how consumption has developed after the very strong September. Leading indicators and weekly credit card data point towards slowing growth, a new experimental CNBC/NRF indicator shows -0.08% m/m. US PPI inflation should decline on headline due to energy prices but core is expected at 0.3% m/m, same as in September. The Empire manufacturing PMI is a warm up to the national PMI next week, but not strongly correlated with it.
Industrial production figures for the euro area for September will shed light on how much of the decline in Q3 GDP manufacturing was accountable for.
UK October inflation is released where we expect a large downtick in headline inflation given the downtick in household energy bill and base effects. Core and in particular service inflation will however be the main market movers as the BoE sees these as key indicators of inflation persistence.
Japanese foreign trade data for October is released early Thursday morning.
The 60 second overview
The US House of Representatives reached a deal on a temporary budget bill such that a government shutdown on Friday is avoided. However, the deal is lasting only till January next year, but was passed with a majority of Republicans and Democrats in the House. This should limit the risk for a downgrade of US Treasuries for now.
The preliminary Q3 GDP numbers from Japan surprised on the downside as the annualized growth was -2.1% Q/Q compared to expectations of -0.4% Q/Q. Hence, the numbers show the challenge for Bank of Japan given the rise in inflation.
The Chinese central bank left policy rates unchanged this morning, but gave a big injection of cash through the medium-term lending facility (MLF). The amount (USD 83bn) was the largest amount since 2016.
Yesterday’s, US October CPI surprised to the downside both in headline (+0.04% m/m SA; consensus +0.1%, Sep +0.40%) and core (+0.23% m/m SA; consensus +0.3%; Sep +0.32%) terms. Shelter accounted for the majority of the downtick in core inflation, but promisingly for the Fed, price pressures in the broader services sector also appeared to moderate. UAW’s strike had little impact on car prices, and Core Goods CPI overall continued its modest decline. While realized inflation data clearly cooled in October, some inflation expectations measures still flagged upside risks. NFIB’s small business survey showed that companies’ price plans have risen further despite still bleak outlook for general business conditions, mirroring signals from University of Michigan’s consumer survey last Friday. However, despite the broad-based easing in financial conditions seen yesterday after the CPI release, oil prices remained surprisingly stable, and the past weeks’ decline should help with keeping both realized and expected inflation under control. Read more details in our monthly Global Inflation Watch – Signs of weaker demand ease inflation risks in October, 14 November.
Equities: Inflation relief sparked huge moves in the bond market, which in turn sparked an outright rally in equities. US surged about 2% and Europe 1.5%. This was a risk-on session with all sectors higher. Most notably a jump up in real estate and especially Nordics, with most names surging double digit. Cyclicals beat defensives and oversold utilities recovered. Positioning plays a part here too of course, as we have seen in slightly oversold conditions, which we have written a great deal about lately. Asian markets are surging in catch-up this morning while US futures are pointing slightly upwards.
FI: There was a broad-based rally in the global fixed income markets after the weaker than expected US inflation data as inflation may prove transitory after all. However, several Fed officials were out stating that there is some way to go and several market participants also warned that inflation might not go away that quickly and that the Federal Reserve should not cut rates too fast.
FX: The US CPI induced rally in global fixed income markets and the subsequent decline in the USD gave a substantial relief boost to risk appetite globally, which in turn strongly benefitted cyclically sensitive currencies such as ZAR, the CEEs and the Scandies. Also, the GBP benefitted while the CAD, CNH and naturally the USD were the clear underperformers with EUR/USD notably moving close to the 1.09 mark
Credit: Credit and equity markets rallied on Tuesday, after a more dovish than expected US inflation print. Itrax Main tightened 3.4bp to close at 70.5, while Itrax Xover tightened 14.6bp to close at 389.5bp (the lowest level since mid-September). Primary markets were once again fairly active, as was the case on Monday.
Following yesterday’s lower-than-consensus inflation print in Sweden, today’s highlight is Prospera’s inflation expectations survey. However, as it is the (small) monthly survey, its market impact is likely to be muted.