Market movers today
Today’s most important releases are the flash PMIs for the euro area, including country-specific PMIs for France and Germany, and PMIs for the UK and the US for September. Although these will attract attention, we stress that PMIs are not the most accurate indicators in terms of GDP growth and we think one needs to analyse a range of indicators to get an idea of the current economic situation amid COVID-19.
There are several Fed speeches tonight, which are going to be interesting in the light of Evans’s hawkish comments yesterday. Fed chair Powell continues his Congressional hearing but we do not expect him to say anything of much significance.
Finally, the German confidence indicator and the Norwegian labour force survey (July) are due out this morning at 08:00 CEST.
The 60 second overview
Fed. Chicago Fed President Charles Evans in a speech yesterday said that even if the Fed has now adopted flexible average inflation targeting (FAIT), it does not preclude raising rates before inflation starts averaging 2%. Following the Fed’s promise of near zero for an extended period, this was interpreted as somewhat hawkish.
US politics. Overnight the US House managed to pass a stopgap funding bill and thus avert a government shutdown. The bill keeps the government operating until 11 December. Meanwhile, the US Supreme Court judge fight continues and albeit president Trump has said he will name the successor of Ruth Bader Ginsburg this Saturday, it does seem to complicate the negotiations over another fiscal relief package.
Trade. US presidential candidate Joe Biden said yesterday that, if elected, he would end the ‘artificial trade war’ with the EU. While a harsh line against China is likely to be continued, Biden’s stance is a welcome message for the EU where digital services as well as the aircraft subsidies, cars and auto industry have been targeted trade-wise by the Trump administration.
Equities. After some stabilisation was seen in Europe yesterday, the US session posted decent gains with S&P500 up 1% on the day. Asia more mixed; Nikkei fell 0.3%.
FI. Mildly positive risk sentiment sent rates higher across the core and semi-core space. Italy led a rally by 5bp in the periphery after the market-friendly election outcome over the weekend. 3M Euribor-deposit spread continues to print negative. US Treasury yields in muted moves with the 10Y settling in the 0.67% area.
FX. USD strength has resumed and EUR/USD weakened to briefly dip below the 1.17 mark yesterday. The Riksbank message yesterday was largely SEK neutral; EUR/SEK remained bid, whereas EUR/NOK seemed to consolidate after the latest NOK sell-off. Unchanged rates in Hungary kept HUF on a weak footing.
Credit. Fairly muted moves in major indices following spread widening early in the week. iTraxx Main Europe remains in the 58 area, while Xover has settled around 332. US indices also generally ended the day little changed overnight.
Nordic macro and markets
Sweden. Yesterday’s Riksbank policy announcement had no meaningful market impact since it was broadly in line with expectations. However, it is worth noting that while most private banks tend to focus on recent signs of a V-shaped recovery, central banks – in this case the Riksbank – lean more towards the expectation that the economy will run well below full capacity for several years as a result of COVID-19, leading to the conclusion that the economy is in need of sustained stimulus both from monetary and fiscal policy. Thus, in spite of data showing a less deep dive than earlier, the policy stance was held unchanged with a ‘zero repo rate’ path through Q3 20 (end of forecast period) and indications that QE volumes of up to SEK500bn by June 2021 will probably be used to the full.