Market movers today
German macro. The ZEW figures will give us a first glimpse how the economy is faring in November and how much the partial lockdowns have dented economic expectations.
Nordic inflation. In Denmark and Sweden, we get October CPI figures, see more below.
Fed. We have several Fed speeches today. The recent FOMC meeting did not reveal anything new and we do not expect the individual members to do so either.
Vaccine. Any news that can shed light on yesterday’s Pfizer/BioNTech announcement.
The 60 second overview
Vaccine news. Yesterday, Pfizer and BioNTech released interim study results of the late stage phase 3 trial of their vaccine candidate. According to the results the efficacy of the vaccine is more than 90% (versus 40-60% for a normal flu shot). Pfizer is also able to deliver a sizeable amount of vaccines and a limited number might be ready as early as December this year. However, the vaccine still needs approval like other phase 3 vaccines and it needs to be distributed.
Note also that Eli Lilly’s ‘antibody therapy’ received an emergency approval from US regulators. It widens the access for treatment for mild and moderates cases on a day where new US cases topped 100,000 and global cases 50.8m.
Market impact. From a market perspective the Pfizer announcement was received very positively and the market is in our view now starting to price a scenario in which COVID-19 restrictions can be lifted in the spring and importantly, uncertainty is now much smaller. We are still facing restrictions throughout the winter and the infection numbers could still rise, but markets can now see an end to the crisis and stimuli should be plentiful in 2021. All in all, ‘normality’ seems to be coming sooner than expected. We might also see other positive vaccine news over the coming months.
Value stocks outperformed growth stocks strongly and Europe outperformed the US. Euro Stoxx 50 rose 6.4% with Financial up an impressive 12% (banks alone 15.4%). On the other hand, the ‘stay-at-home’ tech stocks that have been COVID-19 favourites came under pressure and Nasdaq ended the session 1.5% lower. 10Y UST and Bund yields jumped 15bp and 11bp, respectively. Especially, the jump in Bund yields is noteworthy as the ECB pre-announced more QE at the December meeting. Inflation expectations got a boost, credit spreads tightened and cyclicals currencies performed. Note that some profit taking kicked in late in the US session and US equity futures are down this morning. The set-back in risk appetite might also underline that questions regarding approval, production and performance still remain.
US fiscal package: Mitch McConnell supported markets yesterday by saying Congress should pass a relief bill before year turn, but he does not seem willing to increase the Republican Senate offer of USD500bn just yet. He hinted that the encouraging vaccine news from Pfizer means that the relief bill should be limited. The Democratic Party still says the US economy needs a much bigger package, above USD2,000bn. So it may very well be the case that we need to get the results from the two special runoffs in Georgia before we know what is possible.
Equities. Equities mostly higher yesterday but more importantly value beating growth by the most in a single session since 2000 and small cap outperforming tech by the most since 2002. DAX and S&P500 ended the day 4.9% and 1.2% higher, respectively. Nasdaq fell 1.5%.
With this rotation Europe outperformed US while Norway (energy and value) outperformed Denmark (health care and growth). Some of the optimism has faded overnight resulting in smaller moves in Asia this morning, while futures in both Europe and US are in negative territory.
FI. The vaccine news was really the key driver for global markets yesterday. US treasury yields sold off almost 15bp and touched highs since March at 0.95% (10Y UST), while EGB curves bear steepened. 30Y Germany rose 13bp, while the shorter end rose 5bp (2Y). Bunds sold off by 11bp while 10Y Bund ASW spreads tightened 4bp, driven by the cash leg. Intra-euro area spreads tightened across the board, with the exception of the 10Y BTPs-Bund spread that ended broadly unchanged on the day. The sell-off in the longer end of the curve resulted in front-end €STR pricing to reprice by 4bp by end of next year – but still remains 7bp below spot.
FX. CHF, JPY the big currency ‘losers’ from vaccine news yesterday – both via the risk and via the inflation channel – as this supported global recovery and reflation trades alike in FX space. Scandies continued the recent appreciation trend, while EUR/USD failed to get follow-through of a break of the 1.19 mark and is trading at 1.1830 this morning.
Credit. European credit markets had a good run yesterday. Especially the travel, energy and banking sectors performed strongly on the back of the Pfizer vaccine story. ITraxx Main tightened 3bp to +50bp while iTraxx XOver tightened 23bp to +292bp. We saw moves of similar magnitude in the cash indices.
Nordic macro and markets
Sweden. We expect the consumption indicator to show a continued recovery among Swedish households, forecasting a print of +0.5% m/m (-3.8% y/y). Note that these figures relate to the month of September and since Swedish COVID-19 cases did not start to accelerate until mid-October, this should not have had a major effect on these numbers.
Norway. Core inflation fell to 3.3% y/y in September as imported inflation slowed after peaking over the summer on the back of strong demand. There is still the prospect of a gradually stronger krone combining with lower wage growth to produce lower inflation ahead, but with borders still closed and demand for goods still brisk, we expect core inflation to be unchanged at 3.3% y/y in October.
Denmark. We expect CPI inflation to decrease to 0.5% in October, from 0.6% in September. A large electricity increase from October last year slides out of the y/y measure, which weighs it down. Tobacco prices on the other hand should continue to increase following the April tax increase. The increase stopped abruptly in September, though, following a 12% increase in August, and we expect the last 10% increase to come more gradually. Hotel prices were 20% down y/y in September and we expect them to keep weighing inflation down as long as travel restrictions are in place globally.
