Market movers today
- We expect that the Riksbank will leave both rates and the rate path unchanged at today’s meeting but that it will specify the distribution of purchases across the bond spectre in H2 21.
- Sweden manufacturing and consumer surveys for November should give more clues to the state of the Swedish economy in Q4 and how COVID-19 restrictions affect sentiment.
- ECB releases minutes from its recent meeting, which may give a bit more colour on the internal ECB discussions on policy tools and direction, albeit comments since the meeting have clearly indicated that the PEPP and liquidity operations (TLTRO) seem to be the preferred options.
- Euro M3 growth has moved a lot higher this year and today’s numbers for October are expected to stay close to the rate in September of 10.4%.
The 60 second overview
Brexit. Yesterday, negative headlines suggested that a Brexit deal breakthrough is not imminent. While this week is important, a deal may not be finalised until next week. Our base case remains a deal but we will be more concerned if there is no deal next week either. The EU summit on 10-11 December seems like the last meeting where EU leaders can approve a deal, so both the EU and the UK have only very limited time to make up their minds.
Mixed US macro data. In the US continued jobless claims rose slightly last week, which may be a first indication that the third COVID-19 wave is starting to take its toll on the US labour market. The stakes for agreeing a new stimulus package are rising as extraordinary unemployment measures expire on 31 December. Meanwhile, the growth in personal spending also declined in October, while core capex spending beat market consensus. Market reactions were limited in response to the numbers.
Not much new in FOMC minutes. The FOMC minutes did not reveal much new. The Fed is not about to hike rates anytime soon but we are likely to see changes to the QE programme. The question is just what, but unfortunately the minutes did not send a clear signal. The signal that the Fed will buy bonds ‘at least at current pace over coming months’ will likely change to an outcome-based forward guidance that ‘links the horizon over which the Committee anticipates it would be conducting asset purchases to economic conditions’. We do not know at this point whether the Fed will increase the bond buying pace, buy more bonds in the longer end of the treasury curve, reduce the mortgage-backed security bond buying pace etc. Given that the COVID-19 situation has deteriorated since the meeting in early November and with no signs of an imminent fiscal relief package, we would not be surprised if the bond buying pace is increased.
Equities took a breather on Wednesday after two days of solid gains. US indices closed mostly lower, with Nasdaq slightly outperforming (Dow -0.6%, S&P 500 -0.2%, Russell 2000 -0.5% but Nasdaq up 0.5%). Value stocks retreated, with Materials and Energy among the most sold sectors. Consumer Discretionary, Real Estate and Tech were the best performers.
FI. There were modest movements in global bond yields yesterday. The minutes from the FOMC meeting released yesterday did not reveal any indications of an increase in the QE-programme at the upcoming meeting in December. Today, the US market is closed for Thanksgiving.
Focus in the European fixed income market will be the release of minutes from the recent ECB meeting, which may give a bit more colour on the internal ECB discussions on policy tools and direction, albeit comments since the meeting have clearly indicated the PEPP and liquidity operations (TLTRO) seem to be the preferred options.
FX. EUR/GBP moved above 0.89 yesterday, as negative headlines suggested that a Brexit deal breakthrough is not imminent. While this week is important, a deal may not be finalised until next week.
Credit. Credit markets took a breather yesterday following a long streak of tightening. iTraxx Xover widened to 270bp (+6bp), while Main ended in 49 (+1bp). Cash bonds were more or less unchanged.
