Market movers today
In Sweden, retail sales data for September will be released at 8:00 CET and it is possible that we will see a small decline m/m after five consecutive months of increases. This is because consumer confidence fell slightly in September (but rebounded in October) and the Swedish Confederation of Commerce’s e-commerce indicator also showed weakness in September. Otherwise, the focus will be on the Riksbank’s business survey, which will be released at 9:30 CET. The report was highlighted in the September minutes as an important input for the Riksbank’s November meeting, where Aino Bunge in particular emphasized that she will be looking for comments on price-setting behavior.
After yesterday’s ECB meeting, the ECB’s survey of professional forecasters is due today, read more about our view on the ECB here: Flash ECB Review: Not rocking the boat, October 26.
In the US, the University of Michigan survey will be released.
Following the Israeli army’s incursion into Gaza, we will continue to monitor any developments in the conflict over the weekend.
The 60-second overview
ECB. As expected, the ECB left interest rates unchanged at yesterday’s meeting and indicated that they are done with further rate hikes. Lagarde seemed to be on a mission not to rock the boat in terms of market pricing, she succeeded well and gave indications that this was just a stock taking meeting. Lagarde highlighted the uncertainty about the economic outlook and remained confident that inflation would return to target if rates were held at current levels for a sufficiently long period, based on today’s inflation. Surprisingly, there was no discussion of bringing forward the full termination of PEPP reinvestments.
The outcome was slightly on the dovish side of expectations and led to a slightly dovish market reaction to the ECB decision and press conference, supported by US data releases along the way. Markets are pricing in the first full rate cut in June next year. For more details, see the ECB Flash Review: Not rocking the boat, October 26.
Japan. Overnight, Japan’s October inflation surprised to the upside on both headline and core. Headline rose to 3.3% y/y from 2.8% y/y, while core (which excludes fresh food) rose to 2.7% from 2.5%. Excluding fresh food and energy, inflation slowed to 3.8% from a revised 3.9% in September. The Bank of Japan meets on Tuesday, where we believe there may be further tweaks to the YCC, but we do not expect the negative short-term policy rate to be abandoned until Q2 next year. We remain bearish on USD/JPY, mainly because we believe that the upside risks for US yields are limited from here.
US. US Q3 GDP data surprised to the upside yesterday with flash GDP coming in at 4.9% Q/Q AR (consensus 4.3%, Q2 2.1%). However, inflation was positive with core PCE coming in slightly below expectations at 2.4% y/y (consensus 2.5%). Private consumption remained strong, with real consumption volume up 0.98% q/q, driven mainly by services and accounting for most of the growth. Public investment also continued to grow strongly, supported by past infrastructure stimulus measures. After a strong H1, the boom in private structural investment is cooling significantly. Although inventories added +1.3 percentage points to GDP, the US economy and especially the US consumer remain on a solid footing.
Equities: The combination of solid earnings, strong macro data and a slightly dovish ECB was not enough to lift equities. However, most of yesterday’s decline was already priced in, so it is fair to say that yesterday’s news was not really negative for equities. We saw a slight defensive rotation, but it was very much related to earnings and to a lesser extent to macro and monetary policy. In the U.S., the Dow was down 0.8%, the S&P 500 was down 1.2%, the Nasdaq was down 1.8% and the Russell 2000 was up 0.3%. After-hours earnings came out strong and we see Asian markets higher this morning along with US and European futures.
FI: Yesterday’s slightly dovish market reaction was in line with the average market reaction on an ECB meeting day this year. 10y German Bund yields ended 3bp lower, supported by Lagarde saying that PEPP reinvestments were not discussed as well as the below consensus US PCE. Lagarde conveyed that the meeting was mainly a stock-taking session with no new policy signals for imminent changes, but sent a message that the current level of interest rates will help bring inflation back to target. In this light, today’s SPF release is unlikely to be a market mover.
FX: EUR/USD was largely unaffected by the ECB decision and stronger than expected Q3 US GDP growth, trading in the mid 1.0500-1.0600 range. USD/JPY remains slightly above potential intervention levels, comfortably above 150. EUR/GBP slipped slightly towards the 0.87 level. The Scandinavian currencies have stabilized somewhat, with EUR/NOK above 11.80 and EUR/SEK just below 11.80.
Credit: Despite yesterday’s dovish communication from the ECB, which only marginally lowered long rates, the credit markets remained negative, with the iTraxx main widening by 2.1bp and the Xover by 8.5bp. Both indices widened to 89.4bp and 470.7bp respectively.
