German business confidence under pressure as supply disruptions weigh

Market movers today

Mostly tier 2 data out today. Although not normally a market mover, August US house prices is an interesting release given that the pandemic rally has been followed by some deceleration in prices over the summer. We will also keep an eye on the Richmond Fed manufacturing index. 

The 60 second overview

Lower Ifo: The closely watched German business confidence index dropped for a fourth month in a row to a six month low as the global supply disruptions continue to weigh on the German manufacturing sector where capacity utilization is falling despite a healthy order book. The on-going political coalition talks and the inflation outlook create uncertainty and both factors might have contributed to lower optimism. The main index dropped from 98.8 to 97.7 (expected: 98.0). The 'expectations' index dropped from 97.3 to 95.4 (expected: 96.6).    

Oil market: Oil has seen strong support over the last couple of months due to modest OPEC supply and not least strong demand from the recovery in traveling and 'fuel switching' from natural gas to fuel oil and other fossil fuels in electricity production. Yesterday, Brent traded above USD 86.5 a barrel. Today, the market will be watching US stock data and tomorrow talks between the EU and Iran that eventually could pave the way for more oil from Iran. But for now the market is looking ahead to the OPEC+ meeting next week. The comments from the cartel so far indicate that OPEC+ is still reluctant to put more oil on the market than already agreed.

Inflation expectations: German 10Y break-evens rose to 1.93% yesterday and with support to oil it seems like just a matter of time before the 2%-level is reached. Wage growth will be important for the European inflation outlook the coming years. Read more in Research Euro Area - German wages: what to watch in 2022 that we published yesterday.

Covid-19: The number of Covid-19 cases and death tolls especially in Eastern Europe and emerging markets where vaccination rates generally are low are rising rapidly. Romania now has the highest daily death toll in the world of 19 deaths per million a day. Financial Times has a story on the rising infection rates in Central and Eastern Europe.  

FI: Italy was the main outperformer yesterday versus Bunds after S&P's surprise move to put its rating on BBB stable outlook (from BBB negative) on Friday night, with the BTPt-Bund spread tightening 2.4bp, in what was otherwise a generally muted trading session while we wait for the main event this week, the ECB meeting. 10s30s steepened 3bp after more or less two weeks of consecutive flattening.

FX: Amid little news, EUR/USD dropped briefly below 1.16 yesterday, but ended the day just above. EUR/GBP declined as well but remained above 0.84. EUR/NOK moved marginally lower ending the day just below 9.70 while EUR/SEK moved sideways just below 10.00. 

Credit: A slightly mixed day in credit where iTraxx Xover tightened marginally (0.3bp) to 260bp and Main 0.2bp (to 50.2bp). HY bonds widened 3bp and IG tightened 0.5bp.

Equities continued higher yesterday with MSCI world ending shy of the all-time high levels from September 6. Despite markets pushing higher the last weeks it has been without any clear style leadership. Energy sector of course standing out as the clear winner but defensives and cyclicals basically on par the last month. Yesterday in US, consumer discretionary standing out as heavyweight automaker Tesla rose 12% on massive order from Hertz. Major indices in US yesterday, Dow +0.2%, S&P 500 +0.5%, Nasdaq +0.9% and Russell 2000 +0.9%. The positive sentiment continuing this morning with Asian equities advancing. Nikkei outperforming while Chinese markets are mixed as property developers weighing on Hang Seng following another missed bond payment from a smaller developer. European and US futures pointing to a green opening today.

Nordic macro

There are no important key economic data releases or events today.