Market movers today
- Today’s main economic data release is the US monthly private consumption data for November, especially since the retail sales data showed a decline in November (and downward revisions to the October data). Preliminary US core capex data for November are also due for release.
- We continue to monitor the Brexit negotiations and the vaccine rollout in the EU.
The 60 second overview
UK. France has agreed to end the suspension of travel from the UK, e.g. via the busy Dover port. EU citizens and other residents with negative test results are allowed entrance from the UK and freight traffic should begin moving again Wednesday morning.
US. On Tuesday night President Donald Trump asked Congress to amend the relief-funding package and in particular increase stimulus cheques from USD600 to USD2000. The Democrats are willing to offer this in a separate bill.
Equities. After a tough start to the week, European markets rebounded somewhat. US indexes ended mixed with Dow down 0.7%, S&P 500 -0.2% but Nasdaq and Russell 2000 up 0.5% and 1.0% respectively, hitting fresh records. This rise was led by low yield-beneficiaries like Tech (boosted by Apple) and Real Estate, while classic Defensives and Energy sold off. Yields were broadly unchanged with US 10 year at 0.91%. VIX barely cooled off though, and is still parked at an elevated level. US futures are lower this morning as Trump has threatened to reject the stimulus bill. Asian markets are recovering Tuesday’s losses.
FI. Yesterday’s trading session was rather uneventful as year-end is approaching. Brexit and COVID-19 headlines did not move markets as no significant news was released. Bunds headed 1bp lower on the day. At this stage market participants are reluctant to take on new positons, so even in case of significant market movements, it should be seen in the light of low liquidity. For 2021, we expect more spread compression as we have seen in previous weeks / months and a risk-on environment in rates markets to prevail from the start of the year.
FX. The primary FX theme to track remains value-vs-growth, pricing of inflation and the direction of broad USD. Indeed, yesterday, we saw dollar strengthening on such a theme. In practice, we continue to see further potential for more USD weakness as we head into Q1 and vaccines are rolled out. We would not emphasise too much how markets are playing out into the final trading days of the year.
Credit. Credit markets were broadly unchanged yesterday where iTraxx Xover tightened to 262bp (-1bp), Main was unchanged at 52bp and both IG and HY bonds were flat.
