The movers on the market today
Another quiet day on the data front. Eurozone retail sales for August are expected to reflect a decline in real household income, with consensus calling for a 0.4% decline from July.
In addition, the ECB minutes came out this afternoon. There we will have a little more detail on why the Governing Council decided to raise rates by 75 basis points in September and also on their expectations for further rate hikes to come.
Fed Evans, Cook and Kashkari will also speak in the evening.
Norway’s 2023 tax budget will be released today (see more details in the Nordic section).
The overview in 60 seconds
OPEC+ yesterday decided on relatively large production cuts, planning to collectively reduce production by 2 million barrels per day, or about 2% of global consumption. The actual reduction could however be lower, probably closer to 1 million barrels, as many smaller members such as Nigeria are already producing below their targets. The planned production cuts have drawn criticism from the United States over concerns that rising oil prices could hit the global economy at a fragile time. Oil prices continued to rise yesterday to $93 a barrel and are now up nearly 10% over the past week. We see the price of Brent oil hovering around $100 per barrel in Q4.
Rising oil prices have been a key driver of falling global risk sentiment After the strong sessions of the past few days, equities fell while global bond yields rose due to higher implied inflation expectations in the market. The impact on risk sentiment also supported the USD, with EUR/USD falling back below 99, but the pair rebounded somewhat this morning. Credit markets also reflected market concerns, with the iTraxx Xover widening 18 bps while Main widened 3.5 bps.
On the equity markets, defensives are back in fashion, especially the energy sector after the OPEC+ production cut. Interestingly, growth and quality stocks outperformed despite rising long-term yields. Health care and technology were among the best sectors, while banks were among the worst. Dow, S&P and Nasdaq closed down -0.2%. US futures are still a little higher this morning.
In fixed income markets, financial market volatility continues as evidenced by yesterday’s significant rise in interest rates across all markets as well as the bounce of the EUR 5y5y forward inflation swap. The change in the 5-year and 5-year inflation swap is probably due to the rise in the price of oil following the OPEC production cut. Additionally, the spread between Italy and Germany widened on rating concerns given recent comments from Moody’s regarding a possible Italian debt downgrade. German ASW spreads also widened due to rising rates and widening credit spreads.
Effects : The multi-asset rally came to an end yesterday as EUR/USD apparently failed to clear 1.00 and fell back to the 0.98 level; likewise, equities depreciated slightly. The OPEC+ meeting ended with an agreement to cut production by 2 million barrels/day. Naturally, oil stocks have had some support and the Biden administration is publicly critical of the OPEC+ decision.
Credit: Following the substantial tightening of the past few days, the credit indices changed direction yesterday and the iTraxx Xover widened 18 bps while the Main widened 3.5 bps.
Nordic Macro
Yesterday the Danish Prime Minister called a general election for November 1. Polls indicate a tight race between the major blocs, it all depends on whether some smaller parties will reach the threshold and it is unclear what coalitions are possible. Still, there appears to be broad agreement on the macroeconomic framework among the major parties, so there should be no short-term impact on the market. An election was expected to be called this fall.
The Norwegian tax budget 2023 will be published today. The signals from the government before the publication were clear: the government plans to cover all extraordinary expenses, not only for the electricity subsidy, but also for other extraordinary expenses. Financing is of course facilitated by the fact that a significant part is covered by taxation of the profits of the electricity industry. But in any case, fiscal policy in Norway will most likely help ease the pressure on Norges Bank.
