Market movers today
Today’s highlight of economic releases is German factory orders for August, which we expect to still show some catch-up/improvement given the good manufacturing PMIs and Chinese industrial activity.
Today there will be speeches from a number of central bank officials. In Europe, we have both Lane and Lagarde speaking and this afternoon/ tonight Powell, Harker and Bostic speak.
This morning we published our Nordic Outlook with new macro forecasts. The recovery is going more or less as expected in the Nordics and we expect it to continue, although with more challenges and headwinds in the coming year.
The 60 second overview
Macro. In Europe, as expected service PMIs showed a mixed picture in September and there are clear interlinkages between the domestic virus situation and service activity. Italy and Germany sustained a positive momentum, while Spain and France saw headwinds. However, amid the weakening service momentum it is positive that most firms remain optimistic about the future business outlook (see also our Euro Area Monitor – Autumn blues, 5 October). This mirrors the equity investor sentiment, which is also looking through the current wave, expecting a pickup in growth next year.
COVID-19. Trump tweeted late yesterday that he will be leaving hospital and return to the White House although White House physician Sean Conley said the president is not ‘out of the woods’ yet. S&P500 rose marginally on the announcement but the general improvement in risk sentiment yesterday was not related to Trump’s health. With less than a month to Election Day, Trump remains behind Joe Biden in national polls, swing states polls and according to prediction markets. The key near-term joker for better risk sentiment remains whether the Democrats and the Republicans can find common ground on another relief package.
In Europe, only four countries remain below the European Centre for Disease Prevention and Control’s (ECDC) alarm threshold of 20 cases per 100,000 people on a seven day average, where the risk of COVID-19 is high: Germany (18.4), Finland (15.5), Cyprus (14.6) and Norway (13.9). The most affected countries at the other end of the spectrum are Czech Republic (167.6), the Netherlands (140.3) and France (120.3). The rise in COVID-19 cases are prompting more and more countries to take measures, often regionally, with Paris being on the verge of fresh lockdown and central districts in Berlin having been classified as risk areas.
Equities. Global equities were boosted by the discharge of President Trump from hospital, reducing uncertainty, and the prospect of another round of US fiscal support as US lawmakers continued discussion to overcome the stalemate.
FI. A traditional risk-on sentiment across global markets led to higher rates in EGB space and tighter spreads. 10Y German Bunds rose almost 3bp to -51.1bp. Spreads tightened slightly. Optimism due to Trump’s COVID-19 recovery and hopes for potential stimuli supported risk. Yesterday’s PSPP PEPP data show a support for the spread convergence trade between periphery/ semi-core and core EGBs.
FX. Yesterday, EUR/USD rose during the day towards 1.18, as risk sentiment was overall good yesterday. NOK also benefitted from the better risk sentiment with EUR/NOK declining to 10.84. EUR/SEK grinded higher but is probably noise or flow related rather than fundamental and we would not read too much into it.
Credit. The good tone continued in credit markets yesterday, particularly in the high-beta segment with iTraxx Xover tightening 8bp, while Main tightened 2bp. IG cash bonds generally saw smaller movements, whereas HY cash bonds tightened around 8bp. The EUR primary market remains open, with three issuers in the market yesterday, all attracting solid investor interest.
Nordic macro and markets
In Sweden, production Value Index for the month of August is released today and we look for a continued recovery, especially in the manufacturing sector. However, given recent months’ favourable developments, it would suffice for the index not to fall in order to implicate a rather healthy aggregate growth rate for Q3.
