Market movers today
- Market focus will be on the outcome of the Georgia US senate run-off and implications for notably fiscal policy dependent on the balance of power in the senate (see The 60 second overview below).
- Later today, the Fed minutes from the December meeting are released. The policy committee’s views on the economic outlook and possible policy measures to counter a further economic weakening will be in focus.
- In the eurozone, we get the first indication of the euro area inflation release (tomorrow) with notably German inflation as well as the final PMI releases where we will particularly focus on the southern European prints. We expect German inflation to print at -0.7% (although it is a close call for -0.6%).
- In Scandinavia, we get Norwegian credit and house price figures, see Nordic Macro and Markets below.
The 60 second overview
Georgia run-offs. While officially still too early to call, the Democrats look set to win both of the remaining seats in Congress. Alongside the support of two independent seats that will bring the balance of power to 50/50 in the Senate, leaving Vice President Kamala Harris the tie-breaking vote. Essentially that means the Democrats will take full power in Congress, although, with the slimmest of margins, it will be more difficult to pass legislation not supported by centrist Democrats. This morning yields have risen with 10Y US Treasury yields almost hitting 1.0% – the highest level since March. Rate curves have broadly bearish steepened and the USD has fallen modestly on the prospects of more fiscal easing from the incoming Biden administration.
Equities were a mixed bag yesterday with the US outperforming after the slump on Monday. The rise in oil (see below) made Energy the big outperformer. This morning the US senate race is sending bond yields higher, which should mean a turn for value and not least banks today. This fact combined with the increased odds of a US corporate tax reform down the road should make European markets outperform.
Oil. At yesterday’s day 2 of the OPEC+ meeting, Saudi Arabia surprised markets by announcing a sizeable unilateral 1.0M bbl/day output cut for both March and February. Going into the meeting, OPEC+ was set to discuss plans of adding 500,000 barrels to the market in February. Hence, the Saudi announcement was a surprise, which lifted front-dated Brent Crude contracts by almost USD3/bbl. The reason behind the output cut was demand fears amid the mutating coronavirus. The rest of the OPEC members will keep output unchanged, while Russia (+65,000) and Kazakhstan (+10,000) were allowed to lift supplies by a rather symbolic 65,000 and 10,000 barrels, respectively. The next OPEC+ meeting is scheduled for 3 February.
UK COVID-19. Yesterday evening Prime Minister Boris Johnson presented the results of a large-scale mass-testing survey showing that 1/50 people in the UK and 1/30 in London now seemingly are infected with COVID-19. This is substantially higher than the figures implied by national tests, which are biased towards people showing symptoms. At the same press conference Johnson vowed to speed up the government’s vaccination programme.
FI. Rates curves have generally bearish steepened this morning on the outlook of Democratic Congress control. European rates rose across the board yesterday led by the core/ semi-core countries (2-4bp). Issuance season has started with strong investor demand as visible in the Irish, Italian, Slovenian as well as KfW and NRW Westfalen supply yesterday. We expect similar strong investor appetite for the coming supply as well across asset classes, as the hunt for duration and hunt for yield is still a present market theme and is set to remain at least in the coming months. The 10Y Bund rose 2.7bp ahead of today’s new 10y benchmark of EUR5bn. Yesterday we published a piece on the ECB APP holdings, where notably Italian net purchases declined for the second consecutive month.
FX. EUR/NOK fell towards 10.40 as Saudi Arabia surprised by voluntary cutting crude output. EUR/DKK trades around 7.4400 driven by high FX forwards. This morning EUR/USD is trading bid on news from the Georgia senate run-off.
Credit. Credit markets only saw small price moves yesterday. iTraxx Xover widened 1bp and Main was unchanged along with both IG and HY cash bonds.
Nordic macro and markets
Based on the OBOS-figures, we expect Norwegian housing prices rose 0.5-1.0% m/m (sa) in December, i.e. well in line with Norges Bank’s forecast from the December MPR at 0.7%. Keep an eye on the November credit data to households as well; Norges Bank may be even more likely to respond to credit growth than housing prices.
