Markets await PMIs as Oil price climbs

In focus today

• In the euro area, the flash PMIs for October are released, which are set to be important for markets. Following a positive trend in the latest months, the PMIs are expected to show stabilisation with small declines. The composite PMI is expected to fall to 52.7 from 53.1 which is still a strong level that indicates moderate growth in the economy, despite a small decline. We pay particular attention to the price components, which started to rise again last month due to higher energy prices.
• In the US, S&P Global Flash PMIs for October are due for release. Both manufacturing and especially services PMIs showed strong business activity in September.
• In Denmark, the business sentiment indicator will be released. Business sentiment has improved steadily and is currently at its highest since April 2022 in contrast to the low consumer confidence. The pick-up to new highs has been driven largely by retail, although strong sentiment is broad-based across industries. Also in Denmark, retail sales for September will be released. While our 'Spending Monitor' is not a perfect indicator of official retail sales, weak retail card spending points to a soft September reading.

Economic and market news

What happened overnight

In commodities, Brent crude climbed towards USD114/bbl yesterday and rose further on Friday, reaching its highest level in more than five months, as escalating Houthi attacks on Saudi targets and reports of potential renewed US strikes on Iran increased concerns over Middle East supply risks. Soaring shipping costs have emerged as a second squeeze, with tanker rates from the Middle East Gulf to Asia climbing to over USD37/bbl. US and Israeli militaries have reportedly prepared plans for renewed attacks after next month's midterm elections, with Iran's energy infrastructure seen as a likely target.

In Japan, CPI and PMI data was released overnight. CPI inflation excluding fresh food (BoJ's preferred measure) increased to 2.1% in September from 1.7% in August, above 2% for the first time this year but in line with consensus. Broader price pressures continue to widen gradually with CPI excluding fresh food and energy now at 2.4%. PMIs confirm the picture of a solid economy after the service sector picked up speed while manufacturing decelerated but remained strong keeping the composite PMI unchanged at 52.3. Largely the data supports the case for a continuing cautious hiking cycle from the BoJ with the next rate hike in December. We expect them on hold next week. 

What happened yesterday

In the euro area, consumer confidence fell more than expected in October to -17.9 (cons: -17.0, prior: -16.8), which is the lowest level since May. Weak confidence should weigh on consumption in the fourth quarter of the year. However, we saw decent consumption growth in Q2 despite plunging confidence, so the indicator is not the most reliable for spending at the moment. 

In Norway, the manufacturing confidence indicator rose to 3.4 (prior: 2.6) in Q3, suggesting that the moderate upward trend that began late last year has continued. The details were also somewhat encouraging, with new orders reaching their highest level in four years while price pressures eased.

Also in Norway, the labour market picture remains more mixed. The LFS unemployment rate was unchanged at 4.6% in September, though we still put more weight on the registered unemployment figures from Nav, due next week. Wage growth also appears to be running below Norges Bank's expectations, with preliminary figures pointing to 3.8% y/y in September. Overall, the releases suggest slightly better momentum in manufacturing, but still no signs of renewed wage pressure.

In Denmark, consumer confidence fell to -17.2 in October from -13.7 in September, reversing the improvement seen over the summer. The decline is broad-based, with households more negative about both the national economic outlook and, to a lesser extent, their own finances. Concerns about energy prices and uncertainty linked to the war are likely weighing on sentiment.

Equities: Global risk markets had a bad day yesterday down 1.3%, with S&P500 market cap down 1.2%, and Nasdaq 2.6% down. Markets yesterday questioning two pillars of the growth outlook at once: the returns on the AI investment boom and the resilience of consumer demand in the face of surging oil prices. The combination triggered a sharp sell-off in tech stocks, but the most revealing move came from Treasuries. Despite higher crude prices and concerns about AI, US yields fell sharply by 17bp in the 10y point. The negative sentiment has carried into the overnight session with Kospi down about 1%. US futures are marginally lower this morning.

FI and FX: Energy prices were on the rise again yesterday, which again benefitted the NOK, where EUR/NOK fell below 10.50. EUR/CHF also dropped as the bearish EUR sentiment grew together with a new rise in the French CDS. EUR/USD also briefly fell below 1.12. Yields dropped across the curve both in US and Germany. Notably, the 10Y US Treasury yield fell below 5% for the first time in a month.