Market movers today
The US fiscal policy remains in limbo, while Nancy Pelosi and Steven Mnuchin reportedly ‘continued to narrow their differences’. The realistic way to move forward appears to be after the election, if the (new) president’s party also holds Congress.
Markets remain largely range bound, arguably assuming current issues (Brexit, US fiscal stimulus, coronavirus) are likely to be resolved – but we have yet to see this happening.
In Sweden, NIER will publish its (monthly) extra business survey. We might be in for a modest setback.
We will continue to follow the Brexit news flow closely on the back of both the EU and the UK statements by the end of last week. Relatedly, focus is on central bank speeches from the ECB, the Federal Reserve, the Bank of England and the Riksbank.
The 60 second overview
US fiscal policy in limbo. Yesterday the US session pared European-session optimism and Nasdaq turned an early +1% to -1%, while EUR/USD also pared some of its earlier uptick. The specific language and the package’s size remain key sticking points, i.e. across topics such as state aid and testing strategy. A realistic way to move forward appears to be after the election, if the (new) president’s party also holds Congress.
Brexit compromise? As we have emphasised, the UK government has not abandoned the trade talks with the EU despite PM Boris Johnson’s statement on Friday stating that the UK government will now prepare for no deal. Financial Times ($) reported yesterday that the EU is willing to both compromise and intensify talks, which were the two demands from the UK side to continue talking, making it easier also for the UK to compromise. Negotiations may restart as soon as Wednesday supporting our view that the hawkish headlines on Friday and over the weekend were mostly a play to the gallery. We continue to think a deal is more likely than not (60% versus 40%) but that a deal will not be finalised until November.
Equities. Major equity indices turned during the day and ended the US close in red (Nasdaq -1.6%). The energy sector continues to be one of the weakest sectors with an index level similar to where it was in March and spot oil prices briefly went negative. Reports say OPEC is considering to extend cuts rather than tapering in favour of higher production.
FI. The spread between the periphery and core-EU widened yesterday, which is mainly driven by some profit-taking given the second wave of the coronavirus hitting Europe as well as the upcoming rating review of Italy on Friday by S&P. Italy is on negative outlook by S&P and even though we do not believe in a downgrade, investors might take profit on Italy ahead of the rating review.
FX. Continued sour risk sentiment and Brexit woes set the tone in FX markets yesterday. EUR/GBP made its way higher towards the 0.91 level, while it was overall a quiet day for the Scandies. Slightly negative carry on DKK has been re-established following the recent rise in excess liquidity.
Credit. While the day started out positively, sentiment turned less upbeat during the day and iTraxx Xover and Main ended the day wider (3bp and 1bp, respectively). Cash bonds fared better, with both IG and HY cash bonds ending the day slightly tighter.
Nordic macro and markets
On today’s agenda we have the Riksdag committee on Finance’s open hearing on current monetary policy, where Governor Ingves and Deputy Governor Ohlsson will participate. We do not expect any new policy signals and anticipate communication aligned with the latest minutes.
Additionally, NIER will publish its (monthly) extra business survey. The latest surveys pointed towards a healthy recovery over the summer months, but if the latest COVID-19-related news is any guide we might be in for a modest setback (although it might be too soon for the effects of past weeks’ rising infections to show in businesses’ turnover).
