Market movers today
Today’s calendar is rather thin with the key release being US core capex orders for August due out 14:30 CEST. We look forward to hear NY Fed President John Williams’ view on Fed’s current policy stance, although we expect him to simply repeat the message from Powell and Clarida.
The 60 second overview
US politics. Most, including ourselves, now doubt there will be another fiscal relief package on this side of the US election because of the fight over the nomination of a new Supreme Court judge. The Democrats are giving it a chance by proposing a USD2,400bn package (down from USD3,000bn previously) but it seems unlikely Republicans have appetite for a large package at this point. Still, Treasury Secretary Mnuchin and House Speaker Pelosi are expected to resume negotiations soon. Another relief package may be one factor that could change the current risk headwind to tailwind.
US politics part 2. Some fear Trump will not hand over power peacefully in case Biden wins the election after Trump’s recent comments at a press conference. The Republican establishment is rejecting this with Senate majority leader McConnell tweeting ‘there will be an orderly transition as there has been every four years since 1792’. Biden is favourite to win the Presidential election and on the margin, the Democrats are also favourite to win both chambers in Congress, see US Election: Democrats are slight favourites to secure the Senate, 25 September.
Fed. US breakeven inflation has now dropped below 1.60%, as the FOMC members continue to signal unchanged monetary policy ahead. The low market-based inflation expectations put the Fed under pressure to deliver some more, although a Fed U-turn signalling more easing does not seem to be around the corner. More easing would be an important factor for creating more tailwind to the reflation theme again.
Equities. While European stocks ended the day lower, the major US equity indices ended marginally higher and S&P remains slightly positive year-to-date. All main sectors (except health care) ended higher led by utilities, which rose more than 1%. IT rose 0.6%. Asian equity indices are mostly up this morning and S&P 500 futures are as well.
FI. Yesterday, we did see a modest rebound in European yields despite a significantly higher take-up at the TLTRO than expected. Furthermore, we saw a widening in the 10Y Italy-Germany yield spread after the announcement that the Italian debt office plans to sell EUR8.25bn next week in a new 10Y benchmark as well as a 6Y benchmark and a 4Y floater. Given that the excess liquidity in Euroland continues to rise and that there is a significant reinvestment need from coupons and redemptions from mid-October as well as the ECB QE programme combined with an index extension, it is difficult to see rates rise in the short term.
FX. We continue to see risk-off materialising in selling of NOK and SEK versus EUR. USD is conversely strengthening against most currencies, amplifying moves in USD/NOK and USD/SEK. As such, broad USD is still the relative winner from macroeconomic/market uncertainty, irrespective of what one may think of domestic US politics and dollar liquidity being in ample supply.
Credit. Credit markets continued to widen yesterday, with iTraxx Xover 22bp wider and Main 3bp wider. While the recent weakness has made its way to cash bonds (particularly the high-beta segment), they still seem under less pressure than CDS indices and we expect this pattern to continue.
Nordic macro and markets
With the Riksbank and Norges Bank meetings behind us, there are no scheduled market movers in the Nordics today.
