Market movers today
- Today, we get the December German Ifo. After the stronger than expected ZEW expectations as well as the PMIs in the past 10 days, we will monitor if German companies have a similar upbeat view on the economic outlook.
- We expect Norwegian unemployment declined in November, see more below.
- We expect the Bank of Russia to keep rates unchanged at a meeting this afternoon.
The 60 second overview
Vaccination process is moving forward. Another day with positive vaccine news. As expected, the US FDA’s external advisory board voted in favour of approving the Moderna vaccine. Moderna’s vaccine is now likely to get Emergency Use Authorisation on Saturday (assuming the process follows the same playbook as for the Pfizer vaccine last week) implying the US can start vaccinating also using this vaccine already on Monday. In the EU, the EMA announced that it has moved forward a meeting discussing the Moderna vaccine to 6 January (previously ‘no later than 12 January’). Also yesterday, European Commission Ursula von der Leyen tweeted that the vaccination process in the EU will begin on 27 December (despite a vaccine has yet to be approved in the EU although the Pfizer vaccine is now expected to be approved by the EMA on 21 December). In the UK, 140,000 people have now been vaccinated with the Pfizer vaccine. While the vaccines do not change the fact that the northern hemisphere will continue to struggle with COVID-19 near term, that the vaccination process is moving forward means the global macro outlook for 2021 is much better than just one to two months ago.
Substantial Brexit progress? In a statement European Commission President Ursula von der Leyen said: ‘We welcomed substantial progress on many issues. However, big differences remain to be bridged, in particular on fisheries.’ We think comments in recent days have been mostly positive, suggesting a Brexit deal seems more likely than not right now.
Bank of England kept policies unchanged as expected and still says it stands ready to do more if necessary. The next move depends on the outcome of the Brexit negotiations.
This morning Bank of Japan extended its Special Program to Support Financing aimed at easing corporate funding strains by six months to September 2021, as expected. The yield curve control policy was kept unchanged. Interestingly, Bank of Japan follows in the footsteps of the ECB and the Fed and pledged to begin an examination on more effective ways to achieve its 2% inflation target as core inflation hit a decade-low this morning. Bank of Japan notes that the QQE with Yield Curve Control policy has been working well and sees no need to change that, though. That is probably also why there was no big market reaction. JGB yields inch slightly higher along with USD/JPY. The findings will be published in March.
Equities higher across the globe and across sectors yesterday, resulting in another set of new all-time highs. No clear tilt towards cyclicals or defensive but one sector, Materials stood out as the best performer. Materials is the only sector where the combined 2020 and 2021 bottom-up earnings estimates are higher today than at the start of the year. The combined earnings estimate for the sector is 20% higher than six months ago. This is remarkable given the deep recession in the spring and it is a reflection of higher commodity prices and a weaker dollar. Asian markets are mostly lower this morning and the same goes for futures in Europe and US.
FI. It was a fairly volatile day in the European fixed income market yesterday. 10Y Bunds were down testing -60bp before moving back to -57bp in the afternoon. The spread between the periphery and Bunds continues to tighten and the 10Y BTPS-Bund spread now stands at 110bp. Hence, the spread compression continues as we have seen since May. This is also seen in the performance review of our fixed income trading recommendations for 2020, where after a bad start due to the coronavirus we made a strong comeback. See our Review of our 2020 trading recommendations, 17 December.
FX. EUR/USD moved higher yesterday driven by broad USD weakness but remains below 1.23. EUR/GBP also moved higher but recent Brexit comments have been more optimistic recently. SEK and not least NOK led gains in majors’ space during yesterday’s session. Not least NOK was aided by relative rates, as Norges Bank firmed its medium-term forward guidance on rate hikes.
Credit. Another positive day in credit markets, with iTraxx Xover tightening to 240bp (-6bp) and Main to 48bp (-1bp). Cash bonds also had a good run, with HY tightening 3bp and IG 1bp.
Nordic macro and markets
Norway. Based on the weekly figures, we expect the seasonal adjusted unemployment rate in Norway fell from 4.1% to 3.9% in November. If proven right, this would indicate that the negative growth effects from increasing number of infections and corresponding restrictions should be isolated to November and that there has been a moderate pickup in activity in December.
Yesterday Norges Bank (NB) left rates unchanged and maintained its near-term verbal guidance. More interestingly, however, NB firmed its medium-term guidance on rate hikes signalling the first hike by ‘the first half of 2022’. Meanwhile, the rate path was more explicit indicating a roughly 70-75% probability skew for March 2022. As our view on the output gap and vaccine roll-out is somewhat more upbeat than NB’s we maintain our summer call that NB will be the first G10 central bank to hike rates already in December 2021.
