Market movers today
- The most important event of the day is the ECB meeting (announcement 13:45 CET, press conference 14:30 CET). That said, we expect it to be a fairly boring one with the ECB taking stock after the big package launched at the last meeting in December. For further details see ECB Preview: Taking stock, 14 January 2021.
- In Scandi space, the most important event is the Norges Bank meeting at 10:00 CET. However, just like it is the case for the ECB, we do not expect much action, especially since it is one of the interim meetings. We expect the bank to repeat the message that its policy rate will remain unchanged for some time, with the projections in the December monetary policy report suggesting a first hike in March 2022.
- Besides that we get US jobless claims data at 14:30 CET.
The 60 second overview
Biden inaugurated. President Joe Biden’s inauguration went smoothly. The US will join the Paris Climate Accord, cease the action to leave the WHO, centralise the COVID-19 response (equipment, tests and vaccines), cancel the Keystone XL pipeline etc. BBC has a good overview. Near term, we think focus will be on negotiating another relief package (Biden has proposed a package of USD1,900bn (9% of GDP), but we expect a smaller package of around USD1,000bn (4.7% of GDP)). We do not expect a major makeover of long-term economic policies (tax increases, more money for public infrastructure, technology, R&D and the green energy agenda) until Q4 21.
Japan. This morning, the Bank of Japan kept its QQE with yield curve control unchanged with the target for the short-term interest rate at -0.1% and for 10-year bond yields around 0%. There was one story over the weekend that the BoJ might consider widening the 40bp tolerance band on the 0% 10-year JGB target but this was also kept unchanged. A policy review will be released at the March meeting and here we will likely see some changes, although the BoJ has assured neither yield curve control nor negative rates are up for replacement.
Equities. Global equities closed up for the second consecutive day as Trump left the White House. Again, US outperformed Europe, with all major indices at new highs. Growth extended the outperformance, with the FAANG complex leading. Nasdaq outperformed, up 2.0%, followed by S&P up 1.4%, Dow 0.8% and Russell 0.4%. Our usual growth-sectors, Communication services (Netflix surged on earnings report), Consumer Discretionary and Tech led the gains, with Financials, Energy and Consumer Staples trailing. The buoyant sentiment is continuing in Asia this morning with Shenzhen leading, up 2%. US futures indicates a third day of gains.
FI. US yields edged marginally lower last night despite the strong risk sentiment. It seems that the market for now is buying into the guarantee from Powell that the Fed is in no hurry to taper. However, we believe the discussion will return in H2 and still expect a steeper US treasury curve and have a 1.60% year-end target for 10Y Treasury yields, which could also have an impact on Bunds. For more see Yield Outlook: US yields ticking up – European yields partly to follow in H2 2021, 20 January 2021.
FX. EUR/USD declined yesterday slightly trading below 1.2100 despite the strong risk sentiment. The cross has edged higher again this morning. EUR/GBP declined supported by stronger-than-expected inflation and settled below 0.887. Alongside most other commodity currencies NOK was among yesterday’s clear winners.
Credit. Credit markets were in a cheery mood yesterday, with strong performance in both CDS indices and cash bonds. iTraxx Xover tightened to 247bp (-10bp) and Main to 49bp (-2bp) while HY bonds on average tightened 4bp and IG 1bp.
Nordic macro and markets
Norway. We expect Norges Bank to stay on hold today. First, this is an ‘interim’ meetings with only a press release and no monetary policy report, and second, it is only just over a month since the last meeting. We therefore expect the bank to repeat the message that its policy rate will remain unchanged for some time, with the projections in the December monetary policy report suggesting a first hike in March 2022. What might be interesting is whether the bank comments on the effects of the new containment measures brought in at New Year, considering that the economic fallout from the previous set of restrictions in November was not as bad as expected. We also expect the bank to attribute the NOK’s appreciation since the December meeting mainly to higher oil prices and a general increase in risk appetite. Also, we will look out for any comments on the recent increase in the money market spreads.
In addition, the Q4 manufacturing survey will be published, probably confirming that the manufacturing sector is increasingly optimistic despite the recent lockdowns.
