Market movers today
We will get October flash PMIs from euro area, UK and the US, which are widely expected to show that economic activity continues to slow down.
Another release of interest today will be the ECB bank lending survey ahead of Thursday’s ECB meeting on Thursday.
The 60 second overview
Markets: Equities displayed mixed performance on Monday as the 10-year Treasury yield briefly exceeded 5.00% before receding to around 4.85%. Yesterday was a quiet start to the week on the economic data front. This morning, Asian equity markets are mostly down. PMI data from Japan showed the first decline since December 2022, especially in the service sector, which declined notably but remained in expansionary territory. Elsewhere, EUR/USD reached monthly highs around 1.0680 due to the decline in US yields. Scandi currencies remain under pressure with EUR/SEK and EUR/NOK slightly above 11.70 and 11.80, respectively.
PMIs: The focus today is on growth in the euro area and the US in October. Preliminary PMI data suggests a decline in both manufacturing and service sectors in the US. Manufacturing is expected to decrease to 49.4 from September’s 49.8, while services PMI is expected to fall below the 50 threshold to 49.9 from 50.1. In the euro area, consensus expects relatively unchanged figures for both sectors. Manufacturing is expected to increase slightly to 43.6 from 43.4, while services is expected to decrease slightly to 48.6 from 48.7.
Sweden: Riksbank governor Erik Thedéen will appear before Riksdag’s Finance Committee and discuss the Riksbank’s financial position, earning capacity and long-term capital requirements. The meeting is scheduled for 11:00. A summary will be published in association with that. The background is the Riksbank’s significant losses on the bond portfolio and that over time the Riksbank must raise its own capital to safeguard its own financial independence.
Equities: Global equities were lower yesterday despite a turnaround in yields and oil prices. Hence, a first glance this could look like more classic growth-related risk-off but at the same time cyclicals growth stocks such as tech and consumer discretionary were outperforming and hence, the equity market is still very nervous and investors are confused about which direction the market will go. In the US: Dow -0.6%, S&P 500 -0.2%, Nasdaq +0.3% and Russell 2000 -0.9%. There was more optimism in Asia this morning with gains outside Japan and China. US futures are higher while European futures are lower.
FI: 10Y US Treasuries moved above 5% yesterday before declining some 15bp. Furthermore, the curve flattened from the long end.
Currently, the US bond market is caught between the “higher for longer” scenario relative to the recession scenario. This has to be combined with Federal Reserve’s monthly QT programme. On top of this there is a supply pressure from the significant US budget deficit as well as a declining demand for US Treasuries from overseas investors. Finally, we have seen an increased issuance in USD-denominated debt from e.g. European issuers as the Euro market is under pressure by the ECB QT programme and reduction in excess liquidity.
FX: EUR/USD climbed to 1.0670, a one-month high, amid USD weakening due to falling US yields. The decline in US yields pushed USD/JPY lower to around 149.5. EUR/GBP is still slightly above the 0.87 mark. Scandies continue to be under pressure with EUR/SEK around 11.70 and EUR/NOK around 11.80. EUR/DKK still hovers just above the 7.46 central rate.
Credit: Due to a slight moderation of long-term rates, risk assets recorded a slight recovery late yesterday. Itraxx Main tightened 2.4bp to 87bp and Xover tightened 9bp to 463.5bp. The slightly improved sentiment comes in spite of a sluggish start to the Q3 earnings season in Europe, where some 15% of the EuroStoxx600 index have reported so far and only 43% having beat earnings expectations.
