Market movers today
- Today’s focus will continue to be on the Brexit negotiations, which are in the final and crucial stage ahead of the EU Council meeting on Thursday and Friday, when also the EU versus Hungary/ Poland rift over the NGEU will be discussed.
- German industrial production will be released today.
- The Riksbank releases monetary policy minutes today. Two board members dissented to the decision to extend and expand the QE programme by SEK200bn.
- On Thursday the ECB is set to recalibrate its monetary policy instruments.
The 60 second overview
Brexit. EU and UK negotiators continued Brexit talks over the weekend. Apparently, the two sides are close on agreeing on the issue of fishing rights, while a remaining sticking point is the issue of level playing field in competition rules.
China. Exports rose 21% y/y in November. This is good news for the Chinese economy, but also a good sign for the world economy. The trend is also visible in metal prices, e.g. the price of copper surged 12% the past month.
Equities. Friday´s markets closed higher, despite data disappointments. S&P 500 closed up 0.9%, Nasdaq up 0.7%, Dow up 0.8%, and Russel 2000 clearly outperforming, up 2.4%. Value and Cyclicals outperformed Growth and Defensives. Among sectors, Energy, Materials and Industrials were among the leaders. Consumer Discretionary and Communication Services trailed, with most FAANG companies lower. Asian markets are lower this morning, on rumours that Trump plans to impose sanctions on some Chinese officials. US futures also slightly lower.
FI. 10Y US Treasury yields rose some 6bp and the 2-10Y US yield curve steepened 6bp. Furthermore, the 10-30Y steepened 2bp. The rise in yields as well as the bear-steepening of the US curve came despite the weaker than expected US labour market report. However, the weak labour market report supports the market expectations for significant fiscal easing despite the differences between the Democrats and Republicans. We did not see much impact on the German yield curve from the bearish steepening of the US yield curve. Hence, the German yield curve has remained flat despite steepening of the US yield curve and given the expectations for more ECB easing at the meeting this week. See our ECB review from Friday.
FX. Friday brought a modest reversal of recent spot moves: USD gained with EUR/USD back below 1.2050, GBP lost ground and commodity-sensitive currencies weakened modestly. HUF was the biggest loser, while CAD wore off oil weakness as the Canadian employment report beat expectations. SEK was little changed.
Credit. The good mood continued in credit markets on Friday where iTraxx Xover tightened to 233bp (-10bp) and Main to 45bp (-1bp). Cash bonds were also in good demand and IG bonds tightened 1bp, while HY tightened 5bp.
Nordic macro and markets
The Riksbank releases monetary policy minutes. Two board members dissented to the decision to extend and expand the QE programme by SEK200bn; one was against it (Flodén) and the other (Breman) objected to the size. We are sceptical about the idea to already now increase the programme in H2 next year but the expansion in Q1 was reasonable in our view given the Riksbank’s concerns about the macro outlook. We will look for how the members perceive the room for additional stimulus going forward. We are curious to see if members have become more concerned with the SEK appreciation as suggested by the MPR. Monday also brings a batch of October production data, which will shed some light on how Q4 started. Finally, the central government debt report was accidently published yesterday (instead of today as scheduled). The primary balance was SEK20.4bn higher than forecasted, partly due to higher-than-expected tax income.
