Market movers today
Today’s main event is the Riksbank (RB) meeting (announcement 09:30 CEST). We expect the RB to revise up its economic outlook, but the repo rate path and the QE programme (currently running to mid-2021) are likely to remain unchanged. However, the RB is facing the same problems it has had for years, i.e. a multi-year inflation shortage, inflation expectation inconsistent with the 2% target and a flat Phillips curve.
Bank of England (BoE) governor Bailey will speak at a BBC webinar at 09:30 CEST. We will listen closely to any comments on whether the BoE is going to cut the Bank Rate into negative territory after the committee discussed the effectiveness and implementation of negative policy rates in the UK at the meeting last week.
Fed chair Powell and Treasury Secretary Mnuchin appear before the House Financial Services Panel at 16:30 CEST. The text of the testimony was released yesterday and did not contain any new signals compared to what he said at the press conference after the policy announcement last week, which, in our view, was slightly disappointing, see Fed Monitor: Glass half empty or half full, 16 September.
In terms of economic data releases, euro area consumer confidence in September is due out at 16:00 CEST. Also, the National Bank of Hungary is expected to keep rates unchanged (rate decision due at 14:00 CEST).
The 60 second overview
Lockdown fears. Risk assets were hit by renewed lockdown fears due to COVID-19 after the UK weighed the risk of a second nationwide lockdown after soaring virus numbers; also, the Spanish government said it was looking at whether to put emergency powers in place to get the pandemic under control in Madrid.
US politics. Hopes of a new (phase-4) US stimulus package are fading. Yesterday, the Republicans turned down a stopgap funding bill put forth by the Democrats as it did not include aid for farmers. Further, the standoff between the presidential election candidates over when and who to fill the seat on the Supreme Court after late justice Ruth Bader Ginsburg is drawing attention.
Equities. US indices were lower but generally moderated the sell-off seen in the European session somewhat. S&P500 closed 1.2% lower on the day whereas Nasdaq, which has been the hardest hit over the past month, was little more than 0.1% down yesterday.
Fixed income. A solid decline in global bond yields on the back of a continued equity sell-off. The move was driven from the long end of the curve as 30Y German government bond yields declined almost 6bp relative to only 2-3bp in the front end of the curve. A similar picture was seen in 30Y US Treasury yields that declined 3bp relative to almost unchanged 2Y US Treasury yields.
FX. The broad-based risk sell-off was visible in FX: US strength returned and especially the European currencies were sold off yesterday. Nonetheless, high-beta FX like ZAR, TRY and RUB also took quite a hit, notably against USD.
Credit. Credit markets followed overall risky assets down yesterday, but due to the iTraxx index roll, the new level is not comparable to the old version. However, the old version of Xover widened c.25bp. The new levels for Xover and Main are 326bp and 58bp, respectively.
Nordic macro and markets
Sweden. Today’s Riksbank policy decision will most likely be a relatively quiet event. We anticipate no new policy signals and expect both the rate path and QE-volumes to remain unchanged. Even though one never knows with the Riksbank, the market impact should be relatively muted. On top of the above, Statistics Sweden publishes its sales indicator for the month of August. As part of the coronavirus-enhanced portfolio of indicators it is interesting in its own right, but should not be seen as a market mover.
