Market movers today
- It is a quiet day on the data front today on the international scene with continued focus on Brexit, COVID-19 spreading and the EU Council meeting starting tomorrow, where focus is on the rift between EU versus Hungary/ Poland. Macron and Merkel agreed yesterday that Brexit talks should be kept off the agenda at this week’s meeting.
- In Scandi two key highlights today. Sweden will release inflation expectations today, while Norway will release its GDP figures for October.
The 60 second overview
Brexit. UK Prime Minister Boris Johnson will meet with President of the European Commission Ursula von der Leyen in Brussels today. The Council agreed beforehand that Boris Johnson and the British delegation will solely be negotiating with the Commission and not with individual heads of state towards the end of the transition period on 31 December. A two-day summit of the European Council starts on Thursday where the agenda will be dominated by the current spat with Poland and Hungary.
EU budget rift. The EU has laid down an ultimatum stating that if the two countries do not withdraw their current vetoes regarding the budget and recovery fund before the start of the summit, the remaining 25 member states will proceed ahead and thus de facto exclude both countries from receiving transfers. Yesterday Hungarian leader Orban sounded optimistic about a possible deal saying the EU and Hungary/Poland are ‘one centimetre’ away from a deal. However, a Polish government spokesperson sounded more cautious warning that ‘if the EU does not change its position, a chance of a deal is slim’ and that another summit in January would be necessary to break the impasse. Financial markets shared the optimism as the PLN and HUF strengthened slightly against the EUR. While we think the two sides will find a deal at the EU summit starting tomorrow, we are wary that details of a compromise are few amid silence on the EU side and there is a risk that the two sides underestimate the resistance from the other side.
Vaccine. The UK yesterday, as the first western country, started vaccination of its population using the vaccine developed by Pfizer and BioNTech. Also, test results published yesterday regarding the vaccine currently under development by AstraZeneca, showed that a shot prevents the worst symptoms related to COVID-19, but that efficacy could not be determined for the older age groups due to a lack of infections in those groups. The trial was performed on UK and Brazilian citizens and is currently conducted in the US as well. The AstraZeneca vaccine is thought to be less effective but easier and cheaper to deploy relative to peers.
Equities. Markets struggled for meaningful direction on Tuesday. US equities outperformed Europe and reversed Monday’s declines (S&P 500 up 0.3%, Nasdaq 0.5%, Dow 0.4% and Russell 2000 outperforming, up 1.4%). Sector performance was mixed with both Value sectors and Defensives among the winners. Energy, Healthcare and Materials led the gains (Financials underperformed though), while Consumer Discretionary and Communication services were among the worst performers, though FAANGs ended mixed (and Tesla up 1% after announcing a USD5bn equity offering). US futures indicated a similar opening later this afternoon. Asian markets are more upbeat, with most markets solidly higher and South Korea again leading the gains.
FI. In yesterday’s trading session, Bunds headed below the -60bp level again, driven by similar drivers as we have observed in previous weeks, notably the hunt for yield amid flatter curves. Spreads tightened in core/semi-core space, while peripheral spreads to Bunds were virtually unchanged on the day. We did not see much news that drove EGB markets as we await ECB’s monetary policy meeting tomorrow. Similar to yesterday, we expect a relatively quiet trading session again today.
FX. SEK proved yesterday’s biggest loser in majors’ space posting a loss versus EUR of close to 1%. NOK also traded on the back foot, while ZAR and THB were the session’s winners. EUR/USD was little changed at levels just above 1.20. Finally, GBP gained on modestly positive Brexit news.
Credit. Very subdued moves in credit markets yesterday where iTraxx Xover tightened to 240bp (-3bp) while Main was unchanged at 47bp. Both IG and HY cash bonds were more or less unchanged.
Nordic macro and markets
The Norwegian GDP-figures for October will probably be largely unaffected by the new coronavirus restrictions, which were mainly introduced at the end of the month and in early November. Although the numbers will therefore be slightly out of date, growth in October will still give us an idea of how sharp a slowdown we can expect in Q4. We predict that mainland GDP increased by 0.4% m/m in October, with this growth being relatively broad-based.
In Sweden, the quarterly ‘big’ Prospera inflation expectation survey will be released. The 5Y expectation is a key input for the Riksbank and was highlighted in the latest Riksbank minutes by Per Jansson. The monthly inflation expectation survey has stabilised just below 1.8% since the last quarterly survey, which gives the Riksbank some comfort. However, with a weak inflation outlook (both ourselves and the Riksbank see CPIF at 0.9% y/y in 2021), this may only be a temporary relief. A drop towards 1.5% over the coming quarters would be increasingly painful for the Riksbank as this is seen as a proxy for inflation target credibility.
