Market movers today
In the euro area we will look for final August PMIs and retail sales for July. France is also expected to unveil more details about its new stimulus plan.
In the US, it will be interesting to see if ISM non-manufacturing ticks in as strong as ISM manufacturing and the pace at which initial jobless claims continue to decline.
We will also keep an eye out for what FOMC member Evans has to say on average inflation targeting.
The 60 second overview
Fed. Fed’s Beige book pointed to signs of progress in most districts, but also continued struggle during the COVID-19 crisis as gains were generally modest. NY Fed President Williams emphasised that the new framework is about strategy and not about actual actions in different situations.
Brexit. Comments from EU chief Brexit negotiator Barnier confirmed the previously known stance yesterday, i.e. the UK does not show willingness to compromise on fishing and fair-play mechanisms are needed notably on state aid. Currently, the transition period expires on 31 December and the UK has formally ruled out an extension, so a deal must be reached before 31 December. As both the EU and the UK need time for ratification, Barnier mentioned ‘end of October’ but we won’t be surprised if the negotiations are extended into early November.
Equities continued Tuesday’s rally through most of Wednesday leading to record-high closings of both Nasdaq and S&P500, with the twist of tech underperforming. US and European index futures are in green this morning at the time of writing, which bodes well for the risk appetite this morning. Asian equity indices are mixed.
FI. Yesterday saw a strong rally in fixed income markets with yields ending 5-6bp lower across the board. After dovish headlines related to the strengthening euro from ECB chief economist Lane late on Tuesday night, markets interpreted this as more stimuli may be on the table as a stronger exchange rate will be a drag on the inflation outlook. However, we caution about over-interpreting the headline as we see divergence within the ECB’s governing council building. Spreads tightened marginally.
Germany’s inaugural 10Y green bond (EUR6.5bn) was priced at DBR Aug30 -1bp. The 2s5s German cash curve flattened again and is now inverted.
FX. Because of the monetary policy shift from the Fed last week, we have made a rare interim update of our FX forecasts. We have revised our EUR/USD forecast up to 1.23 in 3-6M and 1.18 in 12M and revised down our forecasts for EUR/SEK and EUR/NOK to 10.30 in 1-3M and 10.10 in 6-12M for both pairs.
Credit. Yesterday was yet another strong day in credit markets (although slight softness crept in towards the end of trading) with iTraxx Xover tightening 4bp and closing in 307bp, while Main tightened 2bp, taking it to 50bp.
Nordic macro and markets
In Sweden the stage is set for a further increase in Services PMI (July print 54.8) as both manufacturing PMI and NIER private services confidence rose to new highs in August. Figures are released at 08.30 CEST. Secondly, Riksbank buys about SEK5bn 3Y covered bonds. Also Riksbank Deputy Governor Skingsley and Governor Ingves are both out on the wire, Skingsley out first at 09.50 CEST talking about how to shift policy from crisis management to recovery support, while Ingves enters at 13.30 CEST discussing the economic situation and banks.
In Norway, the housing market has surprised to the upside in recent months despite the significant rise in unemployment. We reckon the housing market has been fairly tight in August as well, but after the strong turnover and rise in prices in July, we expect prices were largely unchanged from July to August. The tight housing market has raised concerns in Norges Bank regarding the risk of financial instability and as a result, we expect Norges Bank to deliver a more aggressive rate path in the September MPR.
