Market movers today
The market is still scrutinizing any news from the FOMC and tonight we have both Bullard and Evans on the wires.
Initial jobless claims will also be watched to get a first idea of the strength of the US labour market in February.
In Norway, it is time for mainland GDP. We estimate 0.3% q/q growth in Q4. See more in Scandi markets on page 2.
Selected market news
Risk appetite returned to the European government bond market yesterday and especially the periphery bond markets, including France, performed well and spreads tightened against Germany. French 10Y yields dropped close to 10bp. However, bunds were also supported and German 10Y yields were pushed below 0.3% again. German 2Y yields were pushed to a record low of -0.80%, fuelled by the ECB now buying bonds with a yield below the depo rate at -0.40% and the tight repo situation.
There is no single explanation behind the sudden support to France and periphery markets. But many investors probably concluded that the spread levels, for example, for France, which we have not seen this wide since the debt crisis in 2012, were starting to look attractive. Short covering was probably also a part of the story. Reassuring words from ECB president Mario Draghi furthermore supported sentiment. According to Bloomberg, Draghi said that he sees the ECB maintaining an accommodative policy until the end of his term in October 2019. It seems that Draghi is well aware that any talks about ECB tapering or less accommodative policy are very negative for periphery bond markets. The European bond market has also been weighed down by a severe supply wave this week with new bonds from the Netherlands, Belgium, Finland and the EFSF. The supply is now slowing down.
But it does not mean that the market is out the woods yet. More Italian supply is coming to the market already on Monday, the French political situation is still very uncertain and despite Draghi’s reassurance, the ECB tapering discussion could soon resurface. The concern about the Italian banking sector is a never ending story. Finally, the stand-off between Greece, the EU and not least the IMF continues. Yesterday, the Dutch Finance Minister and Eurogroup Chairman Jeroen Dijsselbloem said that if the IMF will not take part or withdraws from the Greek bailout programme, the Netherlands would withdraw too. Greek 2Y yields are again trading dangerously close to 10%.
In the US equity market, financials came under pressure as little news on deregulations were seen and as the recent rally in bonds spooked investors, as it threatens to erode income for US banks. It seems that the market is starting to lose some of its patience with the Trump administration as little news on the promised pro-growth policies including tax-cuts are seen. The major indices all ended more or less flat. The energy sector did well, as oil prices were pushed higher by bullish gasoline stock and demand data.