Sat, Nov 27, 2021 @ 21:01 GMT
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Italian Debt Worries Return

Market movers today

Another weekly reading of US initial jobless claims is due in the afternoon. 16.8 million Americans already filed for unemployment benefits in the previous three weeks and there is no reason to believe numbers stopped surging last week. At the same time, the Philly Fed index is likely to report the worst business conditions since the global financial crisis.

Besides the key figures, we will keep an eye on the videoconference of EU Economy and Finance Ministers and signals from policy makers on potential loosening of the current lockdowns. US president Trump is expected to unveil guidelines later today to ease the stay-at-home rules, as he said the virus showed signs of plateauing in some regions.

In Sweden, Prospera releases April money market inflation expectations (see next page).

Selected market news

After an upbeat start to the week, the risk rally soured yesterday following more disappointing earnings results of US banks and weak economic data. US retail sales posted a record 8.7% m/m drop in March. Clothing stores were particularly hard hit with sales tumbling more than 50%, while stockpiling by consumers ahead of the lockdowns helped boost sales at food and beverage stores. A separate report showed manufacturing in New York State shrinking at the fastest pace on record in April, highlighting the severe impact of the lockdowns to combat the pandemic.

US oil inventories rose 19mb last week – an extraordinary large increase, which illustrates how deep the demand shortfall in oil has grown. That means US oil inventories are rapidly approaching the peak from 2016 amid speculation of limited further storage capacity. Consequently, the US administration is mulling paying producers to leave 365mb in the ground (8% of annual production) and counting it in the government’s strategic reserves.

The sell-off in Italian debt extended to a second day after the idea of ‘corona bonds’ failed to gain traction among EU finance ministers last week and the Italian debt office updated its issuance guidelines for 2020. 10Y yields are now back above 1.8%, the highest since before the ECB initiated its Pandemic Emergency Purchase Programme and the IMF expects Italian net debt to rise by nearly 20 percentage points in 2020 (see also Fixed income section). While Italian yields are still off the peak hit a month ago, the sell-off illustrates that member states’ creditworthiness is back on the radar for investors, underlining the need for a common European debt instrument.

Germany’s government joined the camp of European countries gradually easing economic lockdown restrictions in response to the COVID-19 crisis. Although extending public contact restrictions until 3 May, some smaller shops will be allowed to open again from 20 April under strict hygiene restrictions, while schools will also gradually restart in early May.

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