Market movers today
- DKK. A first estimate of Q3 growth in Denmark with the GDP indicator.
- Speeches. A few Fed speeches today but we do not expect much news. ECB’s Weidman speaks at Bundesbank.
- Rating. Fitch has France and Austria up for review. The Netherlands is up for review by S&P.
The 60 second overview
Markets. Yesterday, the global bond markets rallied as equities faltered. 10Y US Treasury yields declined almost 10bp and the US yield curve bull flattened. The rally in the bond market was driven by rising infections and higher fatalities in the US and despite the progress in the vaccine developments as noted by Anthony Fauci, the top US official on the coronavirus.
Furthermore, the heads of the Fed, ECB and BoE all warned that even with a vaccine there are still significant challenges for the global economy. Federal Reserve’s Powell warned that with the virus spreading in the US the next months would be challenging for the US economy. Similar comments came from the ECB and the Bank of England that also warned about complacency.
Hence, despite the risk-off sentiment, the 10Y spread between Italy and Germany tightened to a six-month low of 121bp, as the ECB is expected to increase QE. A similar picture is seen in Spain and Portugal, where 10Y spreads to Germany are also at six-month lows.
Yesterday, the US CPI data surprised a bit on the downside as CPI excl. food and energy only rose 1.2% y/y in October relative to an expected increase of 1.3%. However, the US labour market continues with the gradual improvement as jobless claims declined the most in five weeks.
Equities. Global equities took a breather yesterday with most major indices lower. Still substantial sector and style rotation going on and still very much linked to the moves in US bond yields. US yields softened further yesterday and the curve flattened, resulting in growth outperforming value and countries like Denmark making a comeback after suffering early this week.
Asian stocks are very mixed this morning, European futures are in red while US futures are flat. Rotation towards growth continuing.
FI. Yesterday, the European rate curves bull flattened, with significant performance in the long end amid general risk-off mood. After the sell-off on the COVID-19 headlines on Monday, rate markets have returned to the same themes as prior to the news. After touching -46bp earlier this week, Bunds currently stand at -54bp and are therefore not far from half way back to the pre-Monday level. Yesterday, Bunds rallied 3bp, while Bund ASW stayed in a tight range. The BTPs-Bund spread tightened 2.5bp yesterday to stand at 121bp, which is a six-month low.
FX. Reflation trades lost further steam on Thursday and this was notably visible in currencies with EUR/NOK and EUR/GBP edging higher. EUR/USD crept a tad higher, however, supported by a decent drop in nominal as well as real US yields and curve flattening. The EM rally on the back of US presidency clarity and vaccine news also seems to be running out of steam and we note that the CNY rally has stalled somewhat as well in recent days.
Credit. While moves were relatively muted again yesterday, the overall direction was a slight widening, with iTraxx Xover 7bp wider (thus ending slightly above 300bp) and Main 2bp wider (to 52bp). HY cash bonds widened around 3bp, but IG cash bonds tightened around 1bp.
Nordic macro and markets
Denmark. We expect the GDP indicator to show a solid rebound in Q3 of 5%, with both consumption and exports providing a robust uplift on the back of the economy reopening. Nevertheless, uncertainty is extraordinarily high this time around and Danish growth cannot match the growth rates seen across much of Europe, as the Danish economy outperformed most other economies in Q2.
Norway. On the back of the latest restrictions (albeit modest compared to peers) we have lowered our mainland GDP forecasts for Norway to 0.8% q/q for Q4. If proven right this will be lower than Norges Bank’s projections, yet the central bank will likely also conclude that downside risks from COVID-19 (vaccines) and trade wars have been much diminished in recent weeks. We have yet to get the final key data points before we make our official call on the Norges Bank December meeting but as things stand now we still think markets underestimate the timing of the first rate hike.
