Market movers today
- The most important market mover today will be US non-farm payrolls. The weak ADP report on Wednesday has probably lowered market expectations a bit. We still expect a strong print but most likely still below 1 million.
- In Norway we get august unemployment figures. We expect a drop in the unemployment rate to 2.8%, confirming that we are headed for a rate hike later this month.
The 60 second overview
Japan: Japanese Prime Minister Yoshihide Suga announced this morning that he plans to resign, a surprise decision just ahead of a vote for party leader as a general election looms. After seeing his approval ratings plummeting as virus cases surged across Japan in the weeks after the Olympic Games, Suga said he will not run for leader of the ruling Liberal Democratic Party (LDP) later this month. That means, whoever becomes the next LDP leader is virtually assured of becoming prime minister due to the party’s dominance in parliament. The Nikkei 225 Stock Index rose almost 2%, while the yen fluctuated.
Covid-19: South East Asia continues to be hit hard by Covid-19 at the moment and vaccination rates are in general lower than in Europe and in the US. This is increasingly also visible in economic data. While manufacturing PMIs remained high in the US and in Europe during August, South East Asian PMIs are now below 50, partly due to restrictions amid big outbreaks. In many countries, COVID-19 will remain a theme also next year in our view.
Danish FX interventions: For the first time since January, Danmarks Nationalbank (DN) refrained from FX intervention in August where EUR/DKK traded slightly higher than the 7.4360 FX intervention level from previous months. However, EUR/DKK dropped to 7.4360 at the end of August and remains there, meaning that DN will likely have to resume FX interventions in September. In our view, the trend of low EUR/DKK and the need for FX intervention will continue until DN eventually cuts interest rates. We maintain our call for a 10bp cut to -0.60% in 3M. Read more in Flash Comment Denmark – Pause in August, but FX intervention looks to resume in September, 2 September.
Equities: Global equities rose to a new all-time high yesterday as most regions, sectors and styles did well. Regionally Latin America continued its underperformance despite oil and industrial metal prices doing fine. The best performing sector was energy while tech for once underperformed. In the US, Dow +0.4%, S&P 500 +0.3%, Nasdaq +0.1%, and Russell 2000 +0.7%. Asian markets are very mixed this morning, with Japan rising almost 2% after the surprisingly resignation from PM Suga. European and US futures are signalling small increases ahead of the US non-farm payrolls later today.
FI: There was a modest rebound in European yields yesterday combined with spread tightening between the periphery and core-EU, despite the significant supply from both France and Spain selling EUR 10bn and EUR 4bn, respectively. Yesterday, we published our ECB Preview: Recalibrating, not tapering – but hawks will squawk, 2 September.
FX: Industrial- and commodity sensitive currencies have had a good week so far and in yesterday’s session NOK joined the group of winners amid the rise in oil. EUR/USD has moved above 1.1850 for the first time since early August while EUR/GBP hovers below 0.86. EUR/SEK is back below 10.20 after temporarily trading above this threshold earlier in the week.
Credit: Credit markets did not move much yesterday, with iTraxx Xover widening 0.7bp (to 226.6bp) and Main 0.2bp (to 44.6bp). HY bonds were unchanged and IG tightened ½bp.
Nordic macro
In Norway, unemployment has continued to come down as restrictions have been lifted and the economy has recovered. At the same time, though, the number of job vacancies has risen sharply since summer last year, indicating that activity and so demand for labour have been very solid in the sectors not directly impacted by coronavirus effects. Based on the weekly jobless data, we expect the unemployment rate to drop to 2.8% in August, which would be marginally below Norges Bank’s projection in the June monetary policy report and so confirm that we are headed for a rate increase in September.
