US avoided government shutdown for now

Market movers today

Euro Area Flash HICP for September is due for release, we look for headline inflation at 3.4% y/y and core at 1.8%. Fed's preferred measure of inflation, the PCE is also released, we look for slight moderation and headline at 4.1% y/y and core at 3.4% y/y.

We will also get Manufacturing PMIs from Sweden and Norway, while US ISM Manufacturing is due for release in the afternoon. We will also follow US August Private Consumption data for further signs of normalizing consumption patterns.

From central banks, Fed's Harker and Mester as well as ECB's Schnabel will be on the wires.

The 60 second overview

US debt limit: As expected, the US congress passed a stopgap bill overnight ensuring funding for the federal government until 3 December, thus avoiding a shutdown today. While the bill did not contain any progress on the debt ceiling issue, and rather just provided more time for the negotiations, we expect Congress to eventually either re-suspend or increase the debt ceiling one way or another. Read our more in-depth take: Research US - Government shutdowns are usually short-lived and no one is interested in a default by the end of the day, 29 September.

Energy: Energy prices continued higher, with Dutch natural gas 1M TFF forward just below 90EUR/MWh. Chinese Vice Premier Han Zheng ordered country's energy companies to secure supply ahead of winter after power rationing has forced industrial companies to reduce output recently. OPEC+ is also considering increasing its supply of crude oil more than previously agreed in its meeting next week, Brent is trading near yesterday's levels around USD 78/bbl.

Inflation: Higher energy prices are pushing up inflation figures and yesterday the German Flash CPI for September rose to 4.1% y/y from 3.9% y/y. While VAT base effects continue to distort the German prints, energy was the biggest inflationary driver (+14.3%). We expect similar developments in the Euro Area Flash HICP readings today, and look for 3.4% y/y and core at 1.8%.

Equities: Equities took another beating yesterday despite starting the day in solid gains. Yesterday, and continuing this morning, a new shift is taking place as the risk-off sentiment is sneaking into bond markets, and yields are creeping lower. This is no cure for equities but will simply mean a new rotation story as a full fetched move toward defensive and minimum volatility stocks. If current market continues it will mean an end to the latest value outperformance and hence also make banks underperform. In US yesterday, Dow -1.6%, S&P 500 -1.2%, Nasdaq -0.4% and Russell 2000 -0.9%. Switching to Q4 does not mean any change in Asia this morning. Indices across the region are lower, led by Japan down 2.5%. China has started the Golden Week celebration this morning and hence Chinese markets are closed. Futures in Europe sharply lower this morning, led by Euro Stoxx 50 down 1.5%. US futures holding up a bit better, down 0.5%. 

FI: After markets taking a short breather from the sell-off on Wednesday, EGBs continued the sell-off yesterday. Core and semi-core spreads tightened marginally, while peripheral spreads widened. Notably the long-end came under pressure amid the inflation prints from Germany that came out at 4.1% in September.

FX: Month-end flows were a dominating driver in yesterday's session which overall left a reversal of previous sessions' price action: the USD weakened while ZAR, AUD and NZD gained. We expect this to reverse in the coming week. Also, CZK was one of the big outperformers following a larger than expected rate hike from the Czech central bank. Lastly, EUR/DKK rose on the back of a unilateral 10bp Danish rate cut.

Credit: Credit markets came under pressure again yesterday where HY bonds were hit particularly hard and widened almost 10bp while IG widened a more modest 0.4bp. Xover and Main widened 4.6bp and 0.6bp, respectively. 

Nordic macro

Norway: Unemployment fell further than many anticipated over the summer, and we expect this to continue in September. Based on the weekly figures, we expect the registered jobless rate to drop to 2.5% (seasonally adjusted), with the risk to the downside. The manufacturing PMI has surprised to the upside in recent months, especially given that the global manufacturing cycle appears to have peaked. We expect the slowdown to show up soon in export-oriented industries, with the PMI probably dipping below 60 in September.