Light macro weak ahead

In focus today

In Denmark, October inflation data is due, with energy and food prices expected to drive up inflation to 1.7% y/y from 1.3% y/y in September.

Similarly, Norway's October inflation figures are released today. We forecast core inflation to have eased to 2.6% y/y, with a slight risk to the upside. We do not expect a reading below Norges Bank's estimate to trigger a rate cut in December.

While last week saw many significant market events, this week's schedule is lighter. On Tuesday, the German ZEW for November will be released, and the key event - U.S. October inflation data - is set for Wednesday. On Friday, the European Commission is set to publish its new economic forecasts, while US retail sales and industrial production data is also due for release. During the week, we receive Chinese credit data, but no specific date has been set. The figures could give an early indication of the effect of the stimulus.

Economic and market news

What happened since Friday

In the US, the University of Michigan's flash consumer sentiment survey for November hit a seven-month peak, rising to 73.0 from 70.5, with the expectations index reaching a 3.5-year high, up nearly 6% to 78.5. Consumers are now less concerned about near-term inflation, with 1y expectations dropping to 2.6% from 2.7%, while 5y expectations edged up to 3.1% from 3.0%.

Turning to politics, Republicans are close to securing control of the House with 214 seats confirmed, needing four more seats to keep a majority, and underscoring that the Republican party is close to sweeping the Congress. A Republican sweep would pave the way for Trump's political agenda, likely implying fiscal policies that could increase the budget deficit, public debt and ultimately inflationary pressures. With Arizona also counted, President-elect Trump won all swing states.

In China, the fiscal policy announcement on Friday fell short of expectations, offering no specific stimulus figures beyond a pledge to be "forceful." That said, there was an announcement of a CNY 6tn local government debt swap program which should ease the situation for local governments and make them able to support the economy more. All in all, it remains unclear to what extent policies will be able to turn the situation around for Chinese growth. Moreover, Chinese October inflation data came in lower than expected at 0.3% y/y and -0.3% m/m (cons: 0.4% y/y, -0.1% m/m).

In Germany, incumbent Chancellor Scholz stated on Sunday he is willing to call a vote of confidence before Christmas, moving up his initial proposal of January 15 amid rising political and public pressure.

In crypto space, Bitcoin surpassed USD 80,000 for the first time on Sunday following Trump's sweep of all swing states and expectations of a more pro-crypto administration. At the time of writing, Bitcoin is hovering around USD 81,600.

Equities: Global equities ended higher on Friday and concluded the week on a positive note, with considerable attention focused on the US election, alongside some notable sector and regional differences. However, observing the sector performance on Friday and regional performance this morning, one can discern a China-effect on the markets. Post-cash close on Friday, Beijing released details on both the local government debt swap programme and additional stimulus measures. However, especially the stimulus part surprised on the downside, resulting in the underperformance of the materials sector and Chinese equities this morning.

Aside from the China effect, defensives were seen outperforming cyclicals on Friday. We do not believe this marks the beginning of a trend where defensives will consistently outperform following the election, but rather it should be viewed in the context of the substantial outperformance of cyclicals over the last three months. Cyclicals have risen by 15%, while defensives have increased by 1.3% in the last three months. In the US on Friday, the Dow closed up by 0.6%, the S&P 500 by 0.4%, Nasdaq by 0.1%, and the Russell 2000 by 0.7%.

Asian markets are lower this morning, led by Chinese H-shares. Futures in Europe and the US are higher.

FI: Friday was another action-packed trading session in fixed income markets. Long-end EUR rates reversed the bulk of the increases seen on Thursday as the Chinese fiscal announcement on Friday was disappointingly unclear. The Bund ASW-spread turned positive, closing at 1.6bp, as Chancellor Scholz said he is open for discussing a timing of early elections already in January. New polling suggests that 2/3 of German voters want the election as early as possible. 10Y US Treasury yields fell a couple of basis points throughout an uneventful US session. But as the majority will likely be razor-thin, markets should continue to trade the 'Republican light sweep' narrative.

FX: The eventful past week ended with broad USD strength across the G10 space. EUR/USD declined to the lower end of the 1.07-1.08 range. The JPY gained momentum in the latter half of last week, pushing USD/JPY below 153 as the likelihood of a December BoJ hike gained traction, with 11bp now priced in, up from 8bp a week ago. EUR/GBP drifted below 0.83. The Scandies traded heavily on Friday, with EUR/NOK around 11.80 and EUR/SEK at 11.60.