Russian diesel supply set to increase amid hopes of "energy ceasefire" in Ukraine

In focus today

• In Denmark, the CPI figure for September will be released. We expect inflation to come in at 2.0% y/y. While higher energy prices continue to put upward pressure on inflation, the reduction in electricity tax, combined with technical effects, is pulling headline inflation in the opposite direction. It will be particularly interesting to see whether food prices fall further in September, as price competition between supermarkets appears to have remained intense.
• For the remainder of the week, the main event will be the US CPI release on Wednesday. China will also publish trade and inflation data on Wednesday, with both PPI and CPI expected to rise further. From the UK, August GDP figures are due on Thursday.

Economic and market news

What happened overnight

In commodities, Brent crude slipped toward USD 103/bbl after trading around just above 105/bbl overnight, reversing recent gains as prospects of renewed Russian diesel supplies eased concerns over global fuel shortages. Prices were also weighed by reports of a potential Russia-Ukraine "energy ceasefire". However, downside was limited by heightened geopolitical risk after renewed Houthi attacks on Saudi Arabia's main airport raised the prospect of retaliatory action, while diplomatic contact between Iran and Saudi Arabia offered some hope of de-escalation.

What happened over the weekend

In the EU-China relations, an agreement has been reached on hybrid cars that could see a drastic cut in exports to the bloc. EU Trade Commissioner Maroš Šefčovič described the deal as marking the end of the "first phase" of negotiations. The agreement is set to reduce exports of Chinese electric and plug-in hybrid cars to the 27-member European bloc by up to 50%. Brussels is pushing for a fundamental rebalancing in trade relations with Beijing. More details about the agreement and next steps are expected to be released as EU leaders meet later this week.

In the Middle East, tensions escalated over the weekend as the Houthis claimed responsibility for strikes on Riyadh's international airport, with authorities in Saudi Arabia reporting further injuries after a new attack on Sunday. The airport remains closed, underlining the disruption risk, while Houthi warnings against using airports in Saudi Arabia suggest tensions could persist. Although energy conferences in Riyadh are continuing, the attacks highlight rising geopolitical risks and could add to market concerns around regional stability and energy infrastructure.

In the US, consumer confidence dropped even further in October from already weak sentiment in September. Except from May this year this is the weakest sentiment on record dating back to the 1950's. Assessment of current conditions dropped remarkably much, against expectations of unchanged assessment. Assessment of future expectations increased, against market expectations for weaker assessment.

In Norway, the core inflation was unchanged at 3.0 % (consensus: 3.1 %) in September. Hence, the recent downward trend in inflation continued through Q3. The figure is marginally higher than Norge Bank's estimate from the recent MPR (2.9%) but not enough to affect monetary policy.

In Sweden, the August flash GDP indicator surprised clearly to the upside, rising 1.1% m/m and 3.5% y/y. Strong momentum was supported by PVI for September, with private sector production up 0.5% m/m and 3.8% y/y, was driven mainly by industrial production growth. While the monthly GDP figures are volatile and should be interpreted cautiously, together with the PVI they indicate solid growth, mostly driven by manufacturing.

Equities: Equities ended Friday higher in both Europe and the US, with many indices close to all-time highs. More importantly, last week showed that yields and oil do not necessarily need to fall for equities to advance. Despite considerable volatility in rates, oil and energy headlines, their broadly sideways direction was sufficient to support stocks, while implied bond volatility gradually eased.

Leadership was equally instructive: this was not a classic cyclical rally. Instead, stabilising oil prices supported consumer staples and consumer discretionary, two sectors that have struggled since the outbreak of the war in Iran, while enthusiasm for AI and capex themes was more subdued.

A meaningful decline in oil would likely provide further upside for equities, but investors should not automatically assume traditional cyclical leadership. Consumer sectors, which have borne much of the pressure from higher energy prices, could be among the main beneficiaries.

Asian equities are mixed this morning, with some renewed hesitation around AI and technology, while US and European equity futures are higher.

FI and FX: European rates ended broadly unchanged as markets continued to focus on France and the upcoming budget debate, while expectations for further ECB tightening have been scaled back. EUR/USD remains just below 1.12, with energy prices and US CPI the main risks. The NOK has strengthened on sticky core inflation, higher oil prices and expectations of a tight Norges Bank stance, while the SEK has recovered recently but is still seen as vulnerable as long as the rate gap versus the ECB remains.