Market movers today
There are no major releases today. Instead, market focus today will likely be on politics, notably the attempt to get a new fiscal policy package through in the US and relations between China and the US.
A key focus later this week will be on Thursday, when Fed Chair Powell gives a keynote speech at Jackson Hole focusing on the Fed’s long-awaited monetary policy framework. From the minutes last week, it is clear that FOMC members prefer outcome-based thresholds (such as inflation) over yield curve control but the timing of the review completion is uncertain.
Also watch out for US and euro-area consumer confidence numbers tomorrow and on Friday, respectively, and German IFO tomorrow.
The 60 second overview
US and European macro: On Friday, European and US PMI releases favoured those of the US. The European PMIs fell back, disappointing market expectations, especially the service PMI (dropping to 50.1 from 54.7 the previous month, while the manufacturing PMI fell back slightly to 51.7). In contrast, both US service and manufacturing PMIs edged further into expansionary territory to around the 54 level.
The weaker European service PMI may indicate that domestic activity has been affected by the flare-up in the coronavirus cases and new restrictions in late summer, while the relatively strong US numbers may reflect the waning second virus wave there.
Brexit: The EU-UK negotiations last week did not produce a breakthrough. In our view, this was not a surprise, as the deadline in October (or more likely, the year-end) is too far away. At the conclusion of the meeting on Friday, the EU’s chief negotiator Barnier warned that a Brexit Deal is ‘unlikely’ in his view. Fishing and state aid appear to be the biggest obstacles to an agreement at this stage. We expect a deal on a simple free-trade agreement later in autumn. The GBP weakened a bit against the EUR on the news but the weakness was somewhat tempered by better-than-expected UK PMIs.
COVID-19: New cases in the US continue to edge lower, while new cases are climbing higher in many European countries, notably France and Italy, while the second wave is abating somewhat in Spain.
Equities: Following a positive close in the US equity market on Friday, Asian stocks edged higher this morning, together with European and US futures, amid reports that the Trump administration is privately seeking to assure US companies that they can still do business with the WeChat messaging app in China.
FI: The 10Y US and German government bond yield drifted lower over the past week, moving to the lower end of the trading range that has formed in these two markets. However, we may see a short-term rebound in yields as we are entering the new issuance season with plenty of government and corporate bond supply. Furthermore, the new supply is set to be concentrated in the long end of the curve.
FX: On the back of Friday’s weaker-than-expected euro area PMIs (and decent US PMIs), most FX in Europe sold off. EUR/SEK and EUR/NOK were slightly higher, while EUR/USD declined roughly one figure to 1.1796.
Credit: Credit markets recovered the ground they lost on Thursday, as iTraxx Xover tightened 4bp, while Main ended 1bp tighter. The primary EUR marker remained muted last week, but we expect activity to pick up this week.
Nordic macro and markets
There are no real market movers today in the Scandi countries. Tomorrow, the Norwegian GDP numbers will be interesting.