Market Movers Today
With no market movers on the calendar, the focus will be on central bank commentary as both Lagarde and Powell speak this evening.
The 60-second review
China: The Chinese economy remains on the brink of deflation after CPI inflation fell to -0.2% y/y in October, back into negative territory. The drop was slightly larger than consensus expectations.
Japan: Bank of Japan Gov. Ueda reiterated that the central bank will maintain easy policy until the inflation target is in sight, but added that the order of the normalization process for yield curve control and negative interest rate policy has not yet been decided.
Oil: Oil prices continued to fall yesterday with Brent dropping below USD80/bbl. With no oil-specific news to report, it may be that the oil market has begun to price in a more significant slowdown in global economic growth, which would likely impact global oil demand.
Stocks: Global equities were little changed yesterday. Relatively large regional differences with Asia lagging Europe in particular. It is perhaps worth nothing that Denmark outperformed due to mostly well-received earnings. In that sense, it is rare to see 4 stocks up almost 10% and 1 down 12% in just one day for the OMXC25 index. Globally, energy was again the laggard as the price of oil continued to fall.
Elsewhere, the preference for cyclical growth continues to dominate as earnings tick lower. In the US: Dow -0.1%, S&P 500 +0.1%, Nasdaq +0.1%, Russell 2000 -1.1%. Asian markets are catching up this morning, largely driven by renewed appetite for tech and cyclical stocks. European and US futures are flat.
FI: Yesterday was mostly about lower rates, lower inflation (with the 5y5y EUR swap touching 2.43%, the lowest since June) and the flattening of the euro curves from the long end. We saw a number of ECB hawks on the wires, not least Wunsch pointing to downside risks to growth and upside risks to inflation, but they were largely ignored by the markets.
Similarly, yesterday’s tier2 releases, captured by the ECB’s consumer expectations survey, ticked higher for the 12m ahead.
FX: The continued weakness in the JPY is a bit of a mystery to us. The combined drop in US yields and oil prices would normally be a tailwind for the JPY, but USD/JPY is still hovering above 150. The Scandinavian currencies made some progress yesterday, with the NOK’s slide coming to a halt. On the news front, the Polish central bank surprisingly left interest rates unchanged, which led to a bounce in the PLN.
Credit: A positive tone in the corporate bond market, supported by a general risk-on sentiment. Yesterday the iTraxx Main was 2bp tighter at 75bp, while the iTraxx X-over was 6bp tighter at 410bp. The positive tone led to a number of new issues including Heineken, Swedavia and Sandoz. Notably, UBS came to the bond market with two USD bonds (including AT1’s) for a total of USD 3.5 billion.
The combined order book was more than USD 36 billion according to Bloomberg! According to Bloomberg, the UBS AT1 issue contains a mechanism that would allow the bonds to be converted into ordinary shares once the bank’s articles of association are amended to provide sufficient conversion capital.
In March 2023, Credit Suisse AT1 holders will be left with a complete write-off of the outstanding AT1s, while the bank’s shareholders will retain some value. The equity trigger in the newly issued UBS AT1’s would mitigate potential investor losses.
Nordic macro
Statistics Norway will publish Q3 wage and employment figures. Note that wage growth in Q3 is likely to be above 6% yoy, partly due to the effects of the central wage negotiations in the spring. The figure will still be well in line with Norges Bank’s September MPR estimate of 5.5 % for 2023. Any signs of a stagnation in employment may be more important for Norges Bank, as this would indicate that the output gap is narrowing.
The Riksbank publishes this year’s second Financial Stability Report at 09.30 CET, press conference with Governor Thedeén at 11.00 CET. He will later present the report at a meeting at the Swedish Bankers’ Association at 17.00 CET.
The previous June Report concluded that the Swedish financial system was functioning well despite high inflation and rising interest rates, but at the same time acknowledged vulnerabilities in the form of high debt burdens in real estate companies and banks’ high exposure to this sector. We expect a similar message this time.
