In focus today
In Israel, voters head to the polls in a general election, with the final polls showing neither Prime Minister Benjamin Netanyahu’s coalition nor the opposition securing a majority. Forming a new coalition could take weeks or months, with Netanyahu likely to remain prime minister in the meantime with the legal right to order military action. The election is also in focus for oil markets amid fears that strikes against Iran could resume after the Israeli election and next week’s US midterms.
In the euro area, the ECB publishes its Q3 bank lending survey, which will show how banks’ credit standards changed over the quarter. The survey is one gauge of how restrictive the ECB’s policy stance is, which matters for the outlook ahead of Thursday’s meeting.
In the US, the Conference Board releases consumer confidence for October. Confidence dropped notably in September to 81.9 and is expected to fall further.
Economic and market news
What happened overnight
In China, industrial profit growth picked up to 14.4% y/y in September from 4.2% in August, in line with our expectation of a recovery following the rebound in manufacturing PMI and higher PPI inflation. The sectoral divide remained pronounced, with profits in computer, communication and other electronic equipment manufacturing more than doubling over the first nine months of the year, while profits in furniture manufacturing fell by more than half.
What happened yesterday
In the US, Anthropic filed for a potentially record-breaking IPO on Nasdaq, expected before Thanksgiving, with some investors valuing the AI lab at about USD1.5tn. The filing showed revenue of more than USD33bn in the first nine months of the year, and the listing is seen as a key test of investor appetite for the AI sector. Meanwhile, Meta announced plans to raise up to USD95bn in its largest-ever equity fundraising to fund its AI expansion, after posting its first negative free cash flow in over a decade. This underscores how big tech companies are increasingly turning to debt and equity markets rather than relying on their own cash flows to finance AI investments. Separately, Microsoft offered buyout packages to up to 60,000 staff as it tries to keep costs under control and trim its workforce while spending hundreds of billions of dollars on AI.
In Germany, the Ifo business climate was broadly as expected in October at 90.2 (cons: 89.9, prior: 89.9). The assessment of the current situation fell to 88.8 (cons: 89.8, prior: 89.5) while expectations rose to 91.6 (cons: 90.0, prior: 90.4). Despite a small decline of the current assessment, the index remains at a multi-year high level, suggesting that the economy is on a steady recovery, as also indicated by the PMIs. The recovery is likely to continue, as expectations are now at their highest level since last summer despite tighter financial conditions and higher energy costs.
In commodities, European natural gas prices climbed further to around EUR97/MWh, another EUR3/MWh increase from last week, as gas remains under pressure from tight supply conditions. Stronger wind energy production over the weekend may ease some of the pressure on gas demand from power production. Oil prices, by contrast, initially eased from Friday’s high on renewed diplomatic efforts to contain the conflict, as top officials from Saudi Arabia, Turkey and Pakistan met Iranian officials in Tehran. However, Brent recovered most of its losses as attacks on Saudi Arabia continued.
In Sweden, PPI rose to 11.2% y/y in September from 6.8%, with prices increasing by 3.4% m/m. The increase was broad-based across import, export and domestic markets. Domestically, electricity trading services made the largest upward contribution, while petroleum products, basic chemicals, basic metals and district heating also added. Food prices continued to pull PPI lower, partially offsetting the increases in other categories. Prices for rubber and plastic products, a good leading indicator of consumer prices for core goods, rose substantially again in September. With September’s CPI data already showing the first signs of higher core goods prices, we expect these prices to continue to rise as underlying price pressures feed through to consumer prices.
In Finland, the Ministry of Finance published an extensive list of possible budget cuts and tax increases for the next parliamentary term, including major cuts to child benefits, reforms to dividend and property taxation and freezes on index-based spending increases. The lists are not official proposals but a toolkit for addressing the deficit and are traditionally used in government forming negotiations, with election due in 2027. Parliament has already committed to EUR8-11bn of fiscal consolidation over the 2027-2031 term.
Equities: Global equities had a strong session yesterday up 0.5%, led by the AI trade. S&P500 rose 0.7% while Nasdaq rose 0.8%. At the top of the table were the AI related names across tech, industrials and consumer disc (Tesla). The catalyst was Anthropic’s filing for a Nasdaq IPO, with a reported market cap in excess of USD2trn, raising USD100bn at the IPO, but those numbers are unconfirmed from the S-1 filing. Five months ago, they were reportedly valued at USD965bn, in a private funding round. Certainly, investors could build this on both a bullish and a bearish case for AI, yet the market clearly took it as the bullish case. Overnight, Asian tech and semiconductor stocks followed higher, and this is noteworthy after the recent weakness in the AI trade. US futures are slightly higher overnight.
FI and FX: The 10Y OAT-Bund spread tightened yesterday, with spillover effect to other EGBs. Meanwhile, the flattening of both the US and German yield curves continue. Despite the slight easing of fiscal tensions, within FX the main concern remains the rise in energy prices and as such EUR/USD ventured below 1.12 again, whilst NOK also saw strong performance. Meanwhile, EUR/SEK remains close to our 1M target at 11.10 and continues to be dominated by the EUR-leg rather than Krona-specific developments.
