Market movers today
- Today, we expect ECB will attempt to make their policy meeting as uneventful as possible. The meeting is largely a prelude to the December meeting, where new staff projections will base the foundation for the exact calibration of ECB’s instruments. We expect ECB to flag risks to the outlook and as such not deviate from the current baseline.
- In Germany, we get flash October HICP figures, a good indicator for tomorrow, which will reveal whether inflation has continued higher in October in the euro area.
- In the US, we will look out for Q3 flash GDP figures.
- We get a bunch of releases out of Sweden with September and Q3 GDP indicator, retail sales and NIER confidence data, see more below.
The 60 second overview
Canada: Yesterday, Bank of Canada took yet another shift in a more hawkish direction by not only ending its QE purchases but also by moving forward its indicated timing for the first rate hike from H2 2022 to the “middle quarters” of 2022, i.e. potentially as early as April next year. The interesting part of the move is that this is yet another central bank acknowledging that growth prospects are weaker than expected yet still accelerate the timing for tightening monetary policy forward in time. Canadian fixed income sold off aggressively while CAD FX strengthened.
Australia: Expectations are mounting for a hawkish shift from the Reserve Bank of Australia before it meets next week after its latest bond purchase announcement overnight, where it opted not to buy short-term bonds and defend it is yield curve target.
Japan: Bank of Japan (BoJ) kept its QQE with yield curve control policy unchanged at a meeting ending this morning. As opposed to other major economies, high inflation is not a theme in Japan. The BoJ cut both its growth and inflation forecasts and now expects 0.0% inflation in the fiscal year 2021. This also means the BoJ will be in no rush to tighten policy by much any time soon.
Oil: Iran said yesterday nuclear negotiations would resume before the end of November. Oil prices fell sharply with Brent falling below USD83/bbl in anticipation of a deal which would see sanctions on Iran oil exports lifted.
Equities: Equities were lower yesterday across regions and across most sectors. Busy reporting day and earnings remains rock solid. Reporting have shown fears on margin pressure were overdone as we argue before the earnings season. However, yesterday it was all about the massive curve flattening and a huge drop in long bond yields. Unsurprisingly, growth stock being the relative winners in this environment while banks, materials and energy being the relative losers. Worth noting small caps suffering yesterday as well. In US yesterday, Dow -0.7%, S&P 500 -0.5%, Nasdaq flat while Russell 2000 lost 1.9%.
Sentiment still sour this morning in Asia where Hong Kong is a relative outperformer for a change, despite being lower. US and European futures are flattish but with the massive pick up in bond volatility we would not be surprise if more volatility is sneaking into equity markets today.
FI: Yesterday saw large moves in medium term and long terms yields that dropped significantly with 10Y Germany dropping 6bp, 10Y UK dropping 12bp and 10Y Italy tightening nearly 2bp to Germany on the back of lower equities. Further, 5s10s flattening nearly 3bp in Germany and 10s30s flattened 3bp. As opposite, the 2Y yields rose 0-2bp in Europe and the big curve movements indicating worry on future growth rates and central banks acting on high inflation.
FX: EUR/USD moved sideways yesterday still trading around 1.16. EUR/GBP moved a bit higher trading closer to 0.845. EUR/SEK still trades marginally below 10.00 while EUR/NOK moved up to 9.77 from 9.70-ish. CAD had a strong session yesterday, as Bank of Canada’s shift towards a faster tightening of monetary policy sent USD/CAD back below 1.24.
Credit: Credit performance was somewhat mixed yesterday. iTraxx Xover widened 1bp while Main closed 0.1bp tighter. HY bonds tightened 3bp and IG was unchanged.
In Sweden, there is a busy calendar today. The release of the September and Q3 GDP indicator will give an overall outlook of the economic activity during the third quarter. So far July and August have been on the weak side indicating GDP at 0.5% q/q giving a downward risk to our ‘low’ GDP forecast at 1.1%. The Riksbank’s latest monetary policy report shows that they expect a GDP increase of 2.3% q/q, which currently appears a bit stretched. We also get September retail sales and October NIER confidence data, where in the latter manufacturing and consumers remain at high levels though seemingly on the verge of rolling over suggesting loss of growth momentum. Finally, Riksbank ‘relative hawk’ Henry Ohlsson holds a speech on the economy and policy at 10.00.