Market movers today
- Without significant data releases today, focus is on the second day of the EU Council summit, where we have already seen significant progress following the approval of the NGEU (see below). Brexit headlines will continue to attract attentiom ahead of the ‘deadline’ on Sunday, which Johnson and von der Leyen agreed upon earlier this week.
- Markets also await the decision of the US FDA that is currently discussing the Pfizer/BioNTech vaccine.
The 60 second overview
ECB. Yesterday, ECB recalibrated its policy instruments with a balanced, conservative package, but left the overall monetary policy stance virtually unchanged. ECB raised the total envelope of the PEPP by EUR500bn to total EUR1,850bn while extending the implementation date ‘at least until March 2022’ from the previous guidance of June 2021. It intends to reinvest PEPP purchases at least to end-December 2023 (December 2022 previously). It left the Asset Purchase Programme (APP) unchanged at EUR20bn per month. ECB also announced additional three TLTRO operations, with sweetened terms, see more in ECB Research: Balanced, conservative, compromise recalibration, 10 December.
EU budget. The EU Council (EU Heads of State) finally approved the Next generation EU Funds. The ‘Rule of Law’ rift between EU and Poland / Hungary was resolved on the first day of the two-day EU Summit, which means that the implementation of the 7y multi-annual financial framework as well as the Recovery Fund can finally start, which is a prerequisite for any distribution of the EUR750bn in loans and grants in response to the COVID-19 crisis. Politically, this is a landmark in EU’s integration, which also focuses on bringing the EU into the digital and green age.
Deal or no deal. No-deal Brexit fears have risen significantly over the past days with both the EU and the UK now planning for no deal despite the new deadline set for Sunday. The mood has really turned sour. The big question is whether this is just the last push before a deal is finalised or whether a deal is off the table, as we have seen this situation so many times before. That said, the risk of a no-deal Brexit has definitely increased over the past week and is now closer to 50-50% than our official 60-40% call.
Equities. Markets were mostly lower in Thursday’s trading. Some strength was visible in the US though, as Growth and small caps rebounded. Nasdaq closed up 0.5% and Russell 2000 added 1.1% while S&P 500 edged -0.1% lower and Dow Jones -0.2%. Among sectors, Industrials, Materials and Defensives were the worst performers, Energy the big gainer along with Tech (AAPL) and Financials. Volatility moved sideways since the rise on Wednesday. Asian markets are mixed this morning, with Chinese markets mostly lower and South Korea higher. Futures in the US indicate a more muted opening.
FI. The German 10y yield traded in a tight 3bp range from lows to highs through the day, in a sign that the ECB meeting did not shake markets. The EGB rates ended virtually unchanged on the day, with a few exceptions such as BTPs, which tightened 2bp. Bund ASW tightened 1bp. Front-end pricing continues to have 9bp priced for a Dec21 rate cut, after a 1bp repricing. At current stance we find front-end pricing aggressive as ECB did not change its language on rate cut outlook.
FX. Commodity currencies had a strong session yesterday with AUD, RUB, NOK, CAD and NZD leading the majors’ pack on higher oil and industrial metals. Only one currency performed better, namely the HUF on the EU budget and stimulus agreement. EUR/USD moved back above 1.21 while SEK was roughly unchanged on the day. GBP was the big loser on a day where Boris Johnson warned Britain to prepare for a no-deal Brexit. EUR/GBP is now trading close to the highest levels since October.
Credit. Credit markets sold off yesterday where iTraxx Xover widened to 251bp (+9bp) and Main to 48bp (+1bp). Cash bonds only saw small movements, with both HY and IG widening around 1bp.
Nordic macro and markets
Today the Swedish Riksbank will buy SEK1.5bn each of SGB 1060 and 1062. The Debt Office will also do a switch of SEK3bn SGB1063 against SEK3.1bn 1053.
