Market movers today
Today, the global PMIs are released. We also get Euro area consumer confidence. We expect the PMIs to show a continued gradual uptrend in August, although at a slightly slower pace to reflect the catch-up in activity of previous prints. In the US, the risk is to the downside after the setback in the regional manufacturing surveys over the past week.
Euro area consumer confidence will be particularly interesting, as the uptrend stalled in July. The August number will indicate if that was just a blip or whether European consumers are turning more cautious in their spending patterns (and increasing precautionary savings), not least with the lingering unemployment risks. If it is the latter, it could still jeopardise a strong recovery in private consumption in H2 20.
The 60 second overview
Macro: Initial jobless claims rebounded to above 1 million (against expectations of a drop compared to last month), although continuing claims edged slightly lower to 14.8 million. In addition, the Philly Fed business outlook experienced a bigger-than-expected setback, mirroring the weak reading in the Empire manufacturing survey earlier in the week. These surveys point to downside risk for today’s PMI manufacturing.
The disappointing US figures may reflect the economic toll from the resurgence in virus cases across the South and West US over the past months. On Wednesday, Fed minutes clearly stated that a further weakening of the US economy would likely prompt a reaction from the Fed.
Japanese manufacturing PMI released this morning ticked up to 46.6 in August from 45.2 in July, consistent with the positive high-frequency numbers we have seen recently in Japan. However, the PMI number still indicates that the Japanese economy is rebounding relatively slowly.
COVID-19: Yesterday, Pfizer Inc. and BioNTech SE said the COVID-19 vaccine they are jointly developing is on track to be submitted for regulatory review as early as October, as they released additional data from an early-stage study. The companies are continuing to analyse data from the Phase 1 trials in the US and Germany. The news helped lift US equities yesterday.
Russia: The RUB came under pressure yesterday with news that Russian opposition leader Alexey Navalny was in a coma after falling ill from suspected poisoning. This, in combination with the tense situation in Belarus and possible Russian intervention in the neighbouring country, raises concern in the market that Russia could be subject to renewed western sanctions, which would weigh on the RUB.
Equities: The positive vaccine news from Pfizer and BioNTech helped lift US equities despite the weak US macro releases, and the positive sentiment has continued overnight in Asian trading. European and US futures also point to positive openings today.
FI: European curves bull flattened yesterday, with the long end declining 3bp by the end of the day after a small rebound on the back of the stronger-than-expected US jobless claims. The 10y Bund yield briefly touched below the -50bp threshold. That also means that the sell-off observed around the start of August has been almost erased. Near term we see more downside risk for bond yields, fuelled by the risk on / long duration, low volatility theme, heading to the -55bp level.
FX: EUR/USD was reasonably stable around the 1.1850 level after the drop post Fed, but the broad USD was slightly weaker. Meanwhile, EUR/GBP dipped below the 0.90 mark and EUR/CHF made it all the way back after Wednesday’s gains. The Scandies were weaker on a lack of new policy signals from either Norges Bank or the Riksbank in their respective appearances on Thursday
Credit: Credit markets opened significantly wider yesterday, with iTraxx Main and Xover 2bp and 10bp wider versus the open, respectively. However, during the day, they regained some of the lost ground and finished the day only 1bp and 3bp wider, respectively.
Nordic macro and markets
Norway: There was little to report from yesterday’s Norges Bank meeting. Norges Bank kept its neutral bias, referring to a stronger NOK, the risk of a second COVID-19 wave outweighing higher inflation, and higher house prices. It was a ‘small’ interim meeting without updated projections. Market reaction in FI and FX markets was limited. However, as we believe Norges Bank will be more upbeat at its September meeting, where we see a good chance of a new upward revision to the rate path, we still see upside for the 5y segment of the curve and keep our positive NOK view. For more see Norges Bank review: Little to report from Norges Bank today, 20 August.
Denmark: We get wage-earner employment numbers for June today. Employment fell by 87,000 between February and May and the decline is potentially not over yet – for while much of society has reopened, which helps retail and service companies, the entire export sector continues to face lower demand from abroad, which tends to put downward pressure on employment. The wage compensation schemes expiring in September will likely herald a further pronounced fall in employment, although we still have to wait a couple of months for these figures.
We also get consumer confidence, which we expect increased from -2.9 in July to -1.2 in August. The improvement was probably mainly driven by Danes having a more optimistic view on the current state of the Danish economy. Nevertheless, continuing uncertainty over further outbreaks of the coronavirus and the wage compensation schemes expiring will likely put a damper on optimism for now.
