Market movers today
- We have a lot of interesting data this week, but will start out quiet today with no tier-1 data.
- In the US the week will bring both CPI inflation, retail sales, small business optimism and regional business surveys from Empire and Philadelphia.
- Focus in the euro area will be on ECB speakers and German election polls.
- In Scandi, Swedish inflation and Norway’s regional network survey are the main events.
The 60 second overview
EU fiscal deficits: During the weekend, EU finance ministers discussed tweaking the EU debt & deficit rules. Most finance ministers agree that fiscal support will have to be scaled back eventually as output returns to pre-pandemic levels, but there are big rifts over the speed of retrenchment and how rules should be adapted to higher post-corona debt levels and allowing for sufficient investments, not least in light of Europe’s green transition ambitions. One proposal is to loosen the 1/20th per annum debt reduction rule for countries with debt ratios above 60% of GDP. Another is to exempt green investments from the debt and deficit calculations though naturally, such can pose substantial challenges in practice. See more in FT (11 September).
Equities sour: US stocks ended the week lower and dollar strengthened in tandem, marking at least a pause in the recent weakening of dollar. Market themes continue to centre on Fed tapering (likely to be announced in September or November), a cyclical slowdown amid high growth rates and amid this, notably a focus towards Chinese regulatory risks. On net, there appears to be a shift towards large caps, low debt and US versus Emerging Markets as investors probably are adding resilience to their portfolios.
Norwegian elections: Based on the recent polls there will likely be a change of government in Norway after today’s general election. The Labour party may regain the power with the support of the Centrists Political Part and the Social Lefts Party and may need further support. Important to stress, we expect no market reaction as the effect on the economic policy in the short and medium term should be limited. The result of the election will probably not be ready until late this evening.
Equities: Equities fell Friday and hence had a rare week of losses here in 2021. It is not in any way that much but simply just a bit choppier than earlier this year. No huge difference between sectors and styles but a shift away from the leadership we have seen earlier. This type of market conditions fits well with a macro environment where momentum is fading but growth is still very solid and this time around well above trend. Worth nothing is the downside hedging taking place and VIX is now north of 20. In US Friday, Dow -0.8%, S&P 500 -0.8%, Nasdaq -0.9% and Russell 2000 -1.0%. This morning, most Asian markets are the moves from Friday. Hong Kong leading the way down with Hang Seng down 2% at the time of writing. European futures are slightly lower while US futures holding on to small gains.
FI: We have a busy week ahead of us with plenty of supply in the European government bond market as well as plenty of key economic data from the US. In the US, the CPI data for August is expected to stabilise, this should ease the speculation regarding stagflation even though we need more data to show that the spike in inflation is transitory.
FX: In the short term, we are likely to continue to see very high correlation between spot EUR/USD and equities where strong equities weaken dollar a tad, and conversely for equity weakness.
Credit: CDS indices sold off slightly on Friday where iTraxx Xover widened 16bp (to 227.3bp) and Main 0.2bp (to 44.7bp). Cash bonds fared better, with HY and IG tightening 1bp and 0.5bp, respectively.
Nordic macro
Based on the recent polls there will likely be a change of government in Norway after today’s general election. The Labour party may regain the power with the support of the Centrists Political Part and the Social Lefts Party and may need further support. Important to stress, we expect no market reaction as the effect on the economic policy in the short and medium term should be limited. The result of the election will probably not be ready until late this evening.
