Market movers today
Markets will continue to focus on the COVID-19 spreading and digest the news about the cancelled US fiscal package (see more below).
Tonight’s FOMC minutes are unlikely to move markets as we have heard from a host of FOMC speakers since the 16 September meeting. However, the minutes will be scrutinised for differences of opinion and the future of QE.
The EU’s negotiation team arrives in London today for more Brexit talks ahead of the EU summit next week.
The US vice-presidential debate will take place today.
In Norway, today brings the government budget for 2021, while industrial production figures for August are due in Denmark.
Tomorrow morning we get the Chinese Caixin PMIs.
The 60 second overview
No US relief package. Yesterday, President Donald Trump tweeted that negotiations on another US relief package in Congress are cancelled and that he will focus on getting his Supreme Court Judge nomination approved. Risk sentiment took a hit, as markets had started to price in a higher probability of a compromise after recent talks. We have highlighted that a relief package was a key joker for risk.
Brexit. Brexit negotiations resume in London today, but RTE News reported yesterday that the coastal states are taking a hard line over Brexit fishery concessions. The GBP weakened after a report that the EU has no plans to offer concessions to Boris Johnson before next week’s Brexit deadline ahead of the EU summit and the EU does not rule out that negotiations drag on into November or December (in line with our expectations), see Bloomberg. As long as Brexit remains unsolved, uncertainty will weigh on the GBP with EUR/GBP trading in the 0.90-0.92 range near term.
Equities. US stocks tumbled with S&P500 down 1.4%, after President Trump ended stimulus talks just hours after Fed Chairman Powell renewed his warning that the economy will stumble without additional fiscal support. Nasdaq futures retreated after a House panel proposed a series of far-reaching antitrust reforms to curb the power of US tech giants like Amazon and Google. Investors in Asia, however, seem less rattled this morning, with major stock indices in the region edging higher.
FI. Yesterday saw yet again mildly positive risk sentiment during European trading hours, which led to a small sell-off in Bunds. Spreads tightened again, led by BTPs yet again with 3.5bp tightening. Italy is benefitting from a carry-friendly environment, a markedly positive net cash flow in October and no issuance until next week. US Treasury yields dropped on Trump’s decision to end stimulus talks until after the election.
FX. The negative hit to risk after Trump’s announcement that the White House will no longer negotiate on another relief package sent EUR/USD nearly a half figure lower to 1.175 from 1.179. Negative Brexit news sent EUR/GBP above 0.91 again. Both EUR/SEK and EUR/NOK increased during the day and after Trump’s announcement ending the day at nearly 10.51 and 10.98, respectively.
Credit. Yet another risk-on session in EUR credit markets, with iTraxx Xover ending in 321bp (11bp tighter) and Main in 54bp (2bp tighter). Cash bonds also performed decently (albeit not as strongly as CDS) and the positive tone was also evident in the primary market where Nykredit printed a EUR500m AT1 with call in 2026 at a yield of 4.125% following initial price talks of 4.75%.
Nordic macro and markets
In Norway, today brings the government budget for 2021. We expect it to confirm our view that spending of oil revenue this year will be NOK40-45bn lower than assumed in the revised national budget in May, resulting in a structural non-oil deficit of 3.8% of GDP. Although the pandemic is set to have ramifications well into next year, the government has been clear that we are now entering a new phase where it intends to have a more targeted response. Therefore, in our view, it is natural to assume that the budget deficit will be even smaller in 2021, such that fiscal policy turns mildly contractionary.
Industrial production figures for August are due in Denmark today and are likely to show a major recovery is underway after production took a dive in July following a plunge of 24.9% in medical production. The rest of the industrial sector has shown signs of improvement in recent months but, even ignoring the medical industry, production was still 7.2% down in July compared with February, so we remain some way from a full recovery.
