Cautionary tone on inflation by Fed speakers

Market movers today

The main focus this week will be on FOMC minutes Tuesday, Riksbank meeting and Euro PMIs on Thursday and US PMIs, German ifo and Japan CPI on Friday.

Today we start out quiet with no big movers on the agenda. 

The 60 second overview

Cautionary tone by Fed speakers. On Friday, some FOMC participants cautioned against declaring victory over inflation despite the recent positive signals. Collins (non-voter) noted that she has seen less progress on non-shelter services inflation and that additional rate hikes cannot yet be taken off the table. Goolsbee (voter) underscored that taming inflation remains the Fed's key focus over growth or the labour market. Daly (non-voter) emphasized that the Fed 'needs patience' as the path to 2% inflation still remains unclear. This week markets will keep an eye out for the FOMC minutes tomorrow evening, although the post-meeting easing in financial conditions could mean that some of the comments are already somewhat outdated. On the data front, November Flash PMIs on Friday will be the most important release; we generally expect to see further signs of cooling economic activity especially on the services sector towards winter.

China keeps lending rates unchanged. China's Loan Prime Rates were held unchanged in line with expectations. They are based on reference rates reported by banks and generally follow the policy rate, Medium Lending Facility rate, which were kept unchanged last week. China seems to prefer quantitative credit measures currently over rate reductions in their monetary tool box in order to protect bank margins and not widen the rate spread further to the US.              

Argentina moves to the right. Right-wing libertarian  Javier Milei came out as the winner of the Presidency in Argentinian elections on Sunday. Milei won on a campaign against the political elite and high inflation close to 150% and has pledged economic shock therapy.

Equities. Global equities booked a small gain Friday and thereby ended a very solid week on a high note. Focus on yields still overarching, with cyclical growth massively outperforming. The renewed appetite for small caps continued Friday sending US regional banks up almost 10% for the week. The energy sector also flying on Friday as the oil price increase 4% (and continuing higher this morning). VIX has made it all the way down from 22 to just below 14 the last month, telling the story about fear of inflation and central banks fading faster than even we would have expected. US equities Friday: Dow +0.01%, S&P 500 +0.1%, Nasdaq +0.1% and Russell 2000 +1.4%. Asian markets are mostly higher this morning led by some optimism around China. US and European futures close to unchanged.

FI. Global bond yields were mainly moving sideways on Friday. Initially, there was a decent decline in global bond yields, where the yield on a 10Y German government bond had declined some 5-6bp and 10Y Treasuries had declined 3-4bp, but by the afternoon yields had erased most of the gains.

FX. During Friday's session EUR/USD rose firmly above the 1.09 mark followed by a squeeze in US yields. Focus turns to the FOMC minutes out tomorrow evening and November flash PMIs on Friday. Oil prices surged by 4% with Brent trading back above 80 USD/bbl. For SEK, the main event this week is the Riksbank rate decision on Thursday.

Credit. Friday marked another positive day for credit markets as the soft-landing narrative continued to take hold in risk assets. Itrax Main tightened 1.7bp to close at 69.9bp, while Itrax Xover tightened 7.1bp to close at 387.4bp (another post September low for both indices). Primary markets were a bit slower, as is common for Friday, but did exhibit some activity with deals announced earlier in the week being executed.