Market movers today
- Economic releases. The calendar is rather slim in international markets.
- US treasuries. Keep an eye on demand when the US Treasury sells 10Y US treasuries today.
- Norway. We expect mainland GDP to fall 1% m/m in November on the back of rising infections and new restrictions.
The 60 second overview
Rising yields continue to be the number one market theme. Yesterday, 10Y US treasury yields jumped to 1.15%. 10Y US yields are now up more than 20bp since the start of the year and are at a level not seen since March last year. The US Treasury will auction 10Y and 30Y treasury bonds today and tomorrow, respectively. Supply of US treasuries is growing rapidly in 2021 and the auctions this week will be the first litmus test of investor demand after the recent spike in yields. Note also that the 5Y segment edged higher as the market continues to reprice Fed expectations. The higher yields weighed on US stocks and supported the US dollar. EUR/USD is trading at 1.2140 this morning. Note that we also saw a spill-over to European bond yields yesterday. The attractiveness of US treasuries for Europeans is growing day by day, as investors can hedge the FX risk and still get a yield pick-up to bund yields.
Fed comment. Yesterday, Fed’s Kaplan said that it might be appropriate to start discussing when to taper and scale down the Fed QE purchases later this year. Kaplan forecasts that the US economy will grow 5% this year as the vaccine distribution will unleash strong growth. He forecasts that the unemployment rate could fall to 4.50-4.75% end-year. The market is closely following the tapering discussion. When Bernanke mentioned ‘tapering’ on 23 May 2013 10Y US treasury yields rose some 100bp over the following four months. Tapering started officially December 2013 and the Fed funds rate was hiked two years later.
US politics. Trump and Pence met yesterday for the first time since the riots last week. They agreed to work together for the rest of Trump’s term. Hence, it seems that Vice President Pence has no plans to invoke the 25th amendment to have Trump removed as demanded by Democratic leaders of the Democratic-led House to stop an impeachment resolution tomorrow. However, for markets Trump is yesterday’s news and the market impact of what happens with Trump before President-elect Biden is sworn in on 20 January should be small.
Vaccines. Yesterday, Financial Times wrote that Pfizer/BioNtech has increased its production target to 2 billion doses this year (from 1.5). The news comes after the recent announcement from Moderna that it is also increasing its production from ‘at least 500 million doses’ to ‘at least 600 million doses’. Later this week, we hope to hear more from AstraZeneca, which is expected to seek for authorisation in the EU.
Equities. Equities fell across the globe yesterday led by cyclical sectors. Healthcare stood out as the only sector rising, while some of the high-flying growth names got a big hit. Still very elevated volatility in some single names where retail investors are very active. Asian markets are mostly lower this morning led by a pullback in South Korean stocks. European and US futures are flat this morning.
FI. After sideways trading in the morning session, the entire EGB sphere sold off yesterday by around 2-3bp in a bear steepening move, following the US sell-off. We saw a general intra-European spread widening to Bunds, with the exception of Spain (and EFSF). The EFSF supply yesterday saw yet another strong demand of more than EUR61bn spread over a 10Y and 31Y supply. The 10Y US-German remained unchanged at 161bp yesterday and is 12bp wider since the start of the year. 10y UST stands at a 10m high.
FX. This week USD has led gains in FX majors’ space with EUR/USD falling to c. 1.2150. Commodity currencies suffered from the setback in risk appetite; ZAR, NOK and NZD were the hardest hit posting losses around 1% versus the USD.
Credit. Credit markets had a weak session yesterday where iTraxx Xover widened to 254bp (+7bp) and Main to 49bp (+1½bp). Cash bonds fared better, with HY widening 4bp and IG 1bp.
Nordic macro and markets
Norway. We expect mainland GDP fell 1% m/m in November on the back of rising infections and new restrictions. In its December monetary policy report, Norges Bank assumed a drop in output of 1.6% m/m in November, so a substantial downturn will not be an argument for postponing higher interest rates.
