Market movers today
In the eurozone, the November inflation prints are due for release. Both headline and core inflation (y/y) are expected to remain fairly unchanged at -0.3% and 0.2%, respectively, compared to October. Also due are retail sales for November, which might print stronger than expected after the strong German numbers earlier this week despite the lockdowns imposed in November.
In the US, the ISM services index for December is due. It is expected to ease somewhat to 54.5, but there may be downside risks given the flaring up of the coronavirus and restrictions being imposed.
After the Democrats’ projected win of both seats in the Senate run-off in Georgia on Tuesday, the focus will turn to the prospects of boosting the USD900bn fiscal support package, as several Democrats are flagging the idea of raising the direct payments to Americans to USD2,000.
This morning we published our Nordic Outlook in which we update our economic forecasts for Denmark, Norway, Sweden and Finland, see Nordic Macro and Markets section.
The 60 second overview
Social unrest in the US with limited market impact. Despite the very violent and unprecedented images and videos from the social unrest in Washington DC with protesters storming Capitol Hill, markets were relatively calm, as no one believes it is going to change the fact that Joe Biden will soon be sworn in as the next US president. This morning the US Congress has resumed counting and certifying the Electoral College votes and hence Joe Biden’s victory at the Presidential Election.
Democratic sweep. While there are still votes left to count, yesterday’s Democratic lead in both Georgia Senator runoffs turned out sufficiently large for the Associated Press (and other media) to call both Senate spots Democratic. This ultimately implies a Democratic Party clean sweep with the party set to control the presidency as well as both chambers in Congress. This sweep (although the narrowest one possible in the Senate) is positive for reflation trades, as it increases the chance of further fiscal easing near term but most likely also limits how much Biden can raise taxes further down the road. This has been the catalyst for 10Y US Treasury yields moving above 1% for the first time since March.
Not much new in FOMC minutes. All FOMC members supported the current bond buying pace (USD80bn US Treasuries and USD40bn MBS per month), while some hinted that eventually the tapering should be like it was after the financial crisis. The Fed also seems happy with its new QE forward guidance and will not strengthen it further by tying it to a specific number or target. The Fed thinks the near-term risks to the macro outlook have risen due to the high number of COVID-19 cases and hospitalisations (and restrictions) but that the medium-term risks have declined due to the vaccination process.
Equities. A school book-like example of a Value rotation played out yesterday as the Democrats secured a majority in the Senate. Value and small caps advanced, while Growth shares heavily underperformed. Similarly, Value intense regions like Europe (not least UK) outperformed growth intense regions, like US and Denmark. Markets finished well off best levels in the US though, as pro-Trump protestors stormed the Capitol building. S&P 500 closed up 0.6%, with market performance highly diverse between indices with Russell 2000 climbing as high as 4.0% and Dow up 1.5%, while Nasdaq lost 0.6%. Financials (banks), Materials (industrial metals), and Energy were among the notable sector gainers, while Tech (AAPL, MSFT, growth software) and communications services (FB, NFLX, GOOGL) lagged. Asian markets are mostly cheering the Senate result this morning, with South Korea leading the gains, while Hong Kong trades lower. Similarly, US futures indicate green indices at the opening bell.
Moderna. Yesterday the European Union allowed for the marketing authorisation of the Moderna vaccine, giving a much needed second weapon amid a slow rollout of the Pfizer/BioNTech vaccine. The decision came shortly after the European Medicines Agency (EMA) cleared the vaccine for use in the EU.
FI. The European rates sell-off was led by the US on the back of the prospects for a Democratic win in both seats in Georgia. 10Y US Treasuries broke 1% (+7bp on the day) for the first time since March on the outlook for additional fiscal spending. The sell-off was broad based in Europe, albeit led by semi-core. The new 10Y German benchmark bond (Feb2031) saw decent demand with a bid-to-cover of 1.64.
FX. Commodity currencies NOK, NZD and AUD rallied yesterday on the back of higher oil and metal prices. Vice versa, commodity importing currency JPY lost ground. Social unrest in Washington will add to a tense political situation in the US, but we doubt it will have a big impact on EUR/USD.
Credit. Decent sentiment in credit markets, with tightening across the board. iTraxx Xover tightened to 249bp (-5bp) and Main to 48bp (-1bp). Cash bonds were also in good demand, with HY bonds tightening 2bp, while IG bonds only tightened marginally.
Nordic macro and markets
This morning we published our Nordic Outlook with economic forecasts for the coming years. New restrictions are weighing on the Nordic economies, especially Denmark, but the damage is temporary and across the Nordics we have become more confident that there will be a robust recovery once restrictions are removed. For Norway, we have actually increased our growth forecast, despite the current COVID-19 situation. In Sweden, higher growth will not be enough for the Riksbank to reach its inflation target.
