Market movers today
- FOMC minutes tonight should provide insight into the threshold for additional easing from the Fed in the short term.
- The US private consumption numbers for October are likely to show an increase but at a slower pace than in previous months.
- US durable goods orders and initial jobless claims (moved forward due to Thanksgiving Thursday) are due for release.
- According to some media, Germany will announce a plan for continued COVID-19 restrictions into December but with an amnesty period over the Christmas holiday.
The 60 second overview
Oil prices continue to rally with the price for Brent crude rising above US48/bbl – the highest level since early March. Oil prices have found support from growing demand optimism on the back of positive vaccine news in addition to support from a gradual decline in broad USD.
Lockdowns. France plans to gradually ease the nationwide lockdown from Saturday allowing small stores to reopen, while keeping restaurants closed until at least 20 January. France plans to start vaccinating end of December or early January. Meanwhile, Germany is mulling an extension of its partial lockdown until at least 20 December with a further tightening of some restrictions.
ECB is said to allow EU banks to start paying dividends from next year if regulators are convinced their capital position is sufficient to withstand the economic and financial consequences of the pandemic.
Equities. US equities continued on a strong note on Tuesday, with S&P, Russell and Dow hitting new highs. S&P 500 closed up 1.6%, Dow up 1.5% (above 30k for the first time), Russell 1.9% and finally Nasdaq 1.3%. Value extended its outperformance, with Energy, Financials and Materials among the sector winners and Real estate the only sector in red. Interestingly, investors moved out of yield vulnerable sectors and into Value this week, although yields have seen quite limited gains this week (US 10y 2bp higher yesterday at 0.89%). While overall positioning looks stretched, the lowered volatility should continue to offer positioning support for equities. Futures point to a muted opening today, indicating small gains on US indices. Asian markets are equally mixed this morning (Hang Seng up 0.9%, Kospi 0.3%, Shenzhen down -0.8%, and Nikkei 225 1.2% higher).
FI. Positive risk sentiment in markets, notably after US open, sent yields higher across the European curves by 1-2bp. The move was driven by the US, where 30y UST yields rose 5.5bp to 1.6% in a bear steepening move. The German yield curve was more immune to the sell-off and only recorded a 1.8bp selloff to -56bp.
FX. EUR/USD remains relatively calm amid continued rotation in equities into energy, industrials and similar. We would often have gauged such rotation as beneficial to the cross. However, valuations and being less cyclical than Scandinavian currencies are issues which currently limit the scope for further (strong) upticks in spot. Thus, we target just 1.20 on 3M. Both EUR/NOK and EUR/SEK rounded off Tuesday’s European session by testing the lower end of recent days’ tight range on strong risk appetite and rallying value stocks.
Credit. Credit had another strong session yesterday in which iTraxx Xover tightened to 264bp (-13bp) and Main to 48bp (-3bp). In cash bond space, HY tightened 6bp and IG 1bp.
