Market movers today
- There are no significant market movers on the agenda today.
- Markets will continue digesting the outcome of this week’s central bank meetings. In addition, we will follow the communication from European authorities regarding the AstraZeneca vaccine after EMA yesterday concluded that the benefits of the vaccine far outweigh the risks.
The 60 second overview
Bank of Japan decided at the meeting this morning to widen the yield curve control target band by 10bp to 50bp around 0% and only purchase ETF in case of market turmoil, Nikkei fell 1.9% as BoJ said it would only buy Topix-linked exchange traded funds.
Vaccine: Yesterday the EMA said that AstraZeneca vaccine is “safe and effective” and that benefits are “far greater” than the risk. EMA said it cannot with certainty conclude whether the vaccine led to the rare events but it will be included in the product information going forward. EMA also said that the number of blood clots among vaccinated people is actually lower than in the general population. EMA also highlighted that the risk needs to be compared to the risk of severe COVID-19. We expect EU countries to resume vaccinations with AstraZeneca very soon, in line with what we outlined last week. Media reported that Germany, France and Italy have already indicated a resumption today. However, in our view, the main question is still what implications it will have for the uptake of AstraZeneca in the EU, also taking the vaccine’s already bad reputation into account.
COVID: Most of EU countries now face a third wave and large parts of France and Italy is back in lockdown. The US on the other hand, continues to see improvement helped by the fast vaccine roll-out. We continue to look for April as the turning point in the crisis, but there is a rising risk it drags into May in the EU due to the clearly more contagious British variant and a slow vaccination roll-out, see more in COVID-19 Update: A third wave is hitting most of the EU.
US-China: The first meeting between the US and China since Biden took office has been reported to have had a tough start focusing on human rights, international collaboration and trade.
Oil: Oil corrected almost 10% lower yesterday after having a long streak this year.
Equities: The volatility in equities returned yesterday, as the value-play came back in fashion. In the US, this led to a big divergence across indices with Dow only -0.5%, S&P 500 down -1.5%, Nasdaq -3.0% and Russell 2000 -3.0%. Energy, tech and communication services were the massive underperformers and Financials the only sector higher. This sentiment is lingering in Asia, with most markets are 1-2% lower this morning. US futures are mostly rebounding higher though, still led by value stocks.
FI: The belly of the US curve came under pressure from the start of yesterday’s session following Powell’s comments as in his remarks he did not try to contain the sell-off. The UST-Bund yield spread touched 200bp. The core European rates rose as illustrated by Bunds ending 2.6bp higher at -0.266% after touching close to -0.25%. While the ECB is mechanically implementing the ‘significantly’ higher PEPP volume, EGB rates are also subject to spill-over from the UST. With 5y5y EUR inflation swap reaching 1.50% yesterday, the highest since early last year, ECB is not expected to actively push against the risk of higher rates. Intra euro-area spreads tightened to Bunds across the board.
FX: Yesterday, EUR/USD dropped almost all the way back to the low 1.19 level prevailing ahead of the FOMC meeting. EUR/GBP did not react significantly to the Bank of England meeting, which was basically a non-event. EUR/SEK returned to familiar levels in the middle of the 10.10-10.20 range while EUR/NOK moved higher due to falling oil prices.
Credit: Though CDS indices saw decent performance, with Xover tightening 1½bp and Main ½bp, cash bonds were softer and HY widened 3-4bp while IG closed around ½bp wider.
Nordic macro and markets
As widely expected Norges Bank (NB) yesterday unanimously left all policy rates unchanged including the sight deposit rate at 0.0%. More importantly, NB firmed its forward guidance with the executive board concluding: ‘In the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in the latter half of 2021’. The rate path indicated both an earlier hike but also more rate hikes than in the December report. While we warn against over-interpreting the implied probabilities the quarterly averages do suggest a close to coin flip between September and December as the time for the first rate hike. We stick to our September call. We also expect NB to deliver two additional hikes in both 2022 and 2023 and one hike in 2024, taking the policy rate to 1.5 % during 2024 – close to NB’s signal.
