Market movers today
A quiet start to a quiet week in terms of economic data releases. Norway’s manufacturing production for September will be released this morning.
Later this week, US CPI for October will be released on Wednesday and consensus looks for a slight uptick given the ongoing wage pressures and supply shortages. Chinese PPI released on Wednesday is also expected to further accelerate from the current elevated levels. On the Euro Area, German ZEW index released on Tuesday will offer a first glimpse of the November growth momentum.
Finally, the University of Michigan’s Consumer sentiment survey for November, which released on Friday, will be followed for the key inflation expectations measure.
A number of central bank speeches will also attract attention throughout the week following last week’s meetings – Fed’s Powell will be on the wires on Tuesday.
The 60 second overview
Strong US jobs report: The US jobs report on Friday was strong. Not only was jobs growth in October higher than anticipated, there were also significant upward revisions to the previous two months. The reason is likely a combination of declining COVID-19 cases and some lagged effects from the expiration of higher benefits. Wage growth remains high amid still subdued participation. Jobs growth may decelerate again over the winter if the US is hit by another COVID-19 wave (which is our base case) but will remain positive. From a Fed perspective this also means higher pressure for tightening faster than what policymakers are signalling right now. We still expect two rate hikes next year (25bp in both September and December).
German slowdown: More signs the German manufacturing sector is slowing down with industrial production down 1.1% in September contributing to Germany’s lacklustre growth performance. Car production remains 30% below pre-pandemic levels. Order books remain full and supply bottlenecks remains the key issue.
China: This morning exports beat expectations with October up 27.1% y-o-y reflecting booming goods demand, easing power crunch and may improvement in supply chains.
Equities: Global equities higher Friday once again driven by DM and not least US stocks while EM lagged driven by Chinese stocks. US stocks have had an impressive run with S&P500 higher in 16 out of the last 18 trading days and are now 3% above the peak early September. Friday gave renewed tailwind for value stocks after suffering Thursday. One could also put it the other way around saying growth stocks lagged as healthcare was beaten on weakness in many vaccine related names. In the US on Friday, Dow +0.6%, S&P 500 +0.4%, Nasdaq +0.2%, Russell 2000 +1.4%. The positive tone from Friday on Wall Street has not carried over to EM where markets are lower this morning. Futures in Europe and US are also lower as we head into a new week.
FI: Over the past two weeks we have been reminded that central bank communication is not a simple task in Europe and has significant impact on interest rates, volatility and spreads. Last week ended with a solid decline in interest rates, volatility as well as spread compression between core-EU and the periphery as ECB “back-tracked” on the comments from the ECB meeting.
FX: EUR/USD temporarily dropped to 1.151 on the relatively strong US jobs report on Friday, but quickly rebounded. EUR/GBP held on to the gains after the dovish BOE meeting Thursday trading in the 0.855-0.86 range.
Credit: Sentiment was good in credit on Friday. ITraxx Xover tightened 3.6bp (closing in 244bp) and Main 0.6bp (to 48.2bp). HY bonds tightened 3bp and IG 0.5bp.