Market movers today
Today’s key event is the US jobs report for August. We expect employment to have continued to recover in August but not at the same pace as previously. The slower pace is a signal that the US economy is still struggling with COVID-19, which means local restrictions and people staying at home due to fear of catching the virus. We know from other countries that a more solid rebound is not on the cards until the virus gets under control.
In Denmark, we get August bankruptcies. The numbers have remained surprisingly low so far and based on the number of bankruptcy petitions in recent weeks, this does not appear to have changed in the past month.
We will also keep an eye on whether S&P publishes new debt ratings for Finland.
The 60 second overview
Fed. There were several Fed comments late yesterday ahead of the Fed’s blackout period beginning tomorrow. Although they are non-voting FOMC members this year, it was interesting to hear that Chicago Fed president Charles Evans and Atlanta Fed president Raphael Bostic think inflation is allowed to go as high as 2.5% and 2.4%, respectively. Overall, the FOMC members also seem to think forward guidance on rates and QE needs to change soon – we are calling for changes already at the upcoming meeting.
US. In the US, House Speaker Nancy Pelosi and US Treasury Secretary Steven Mnuchin have agreed to work on avoiding a government shutdown ahead of the US election despite the gridlock in the negotiations on another relief package. The current government funding bill expires on 30 September so this is very welcomed news, although a relief package on top of it would be even better from an economic perspective.
ECB. Bloomberg’s survey among analysts ahead of next week’s ECB meeting showed that no policy changes are expected next week, but most respondents expect an increase in PEPP by EUR350bn extending it into H2 next year.
Equities saw a strong correction yesterday sending major equity indices lower by 2.8-3.5%. Notably tech had a tough day yesterday for a second day in a row after a strong rally in previous weeks. Tech stocks declined 4.7%. Equity futures point to a weak opening.
FI. After the French and Spanish supply in the morning coupled with Weidmann’s comments Thursday night, which weighed on European yields, the picture was turned around in the afternoon, leading to lower yields by the end of the day. Weak risk sentiment, coupled with expected increased ECB purchases can also be pinpointed as drivers. Spreads widened slightly as curves flattened.
FX. JPY and CHF rose vis-à-vis NOK and SEK yesterday, where equity markets and commodity prices fell sharply. After rising close to 1.20 early in the week, EUR/USD has dropped back to around 1.18. EUR/NOK rebounded back above 10.50 after briefly falling below 10.40 earlier in the week.
Credit. Sentiment in credit markets made a U-turn yesterday, with iTraxx Xover widening 16bp, taking it to 323bp, while Main widened 2bp to 52bp. Notwithstanding the poor sentiment in CDS, Daimler managed to print a EUR1bn 10Y green bond 10bp through its secondary curve, while still attracting EUR8bn in orders.
Nordic macro and markets
In Norway, we still believe in a steeper short-end of the curve post yesterday’s house price release. Markets have re-pushed the pricing for the first Norges Bank rate hike out to Q4 2022, which is in line with Norges Bank’s June signal. Meanwhile, we think Norges Bank will move forward that signal later this month, which alongside wider NOK FRA/OIS could push the short end higher. We also believe in a relative flattening of the 5s10s segment of the curve versus EUR. On the FX side we think NOK bulls increasingly should mind positioning, global sentiment scores, a lower Norwegian COVID-19 fiscal bill and by extension lower NB NOK purchases, oil supply overhang and BEER model estimates.
