Market movers today
Today’s number of market movers is fairly light. In the UK the monthly GDP indicator is likely to show a big surge in August, but Brexit headlines will remain the dominant driver for GBP for now.
In Scandinavia, focus is on Norwegian inflation, Swedish household consumption and Danish export figures.
The 60 second overview
US politics. US President Trump may have U-turned on fiscal easing, or at least Treasury Secretary Steven Mnuchin may have persuaded him. At least Mnuchin seems keen on getting a deal over the finish line. That said, it seems we are in the same place as in July with no deal in sight near term, unless the White House is willing to listen to the Democrats’ demands. This morning we published our weekly US Election Monitor, where we take a closer look at mail voting, which has been a heavily debated topic in the US, see US Election Monitor: Mail ballots complicate the election (there are also plenty of updated opinion polls included).
COVID-19. Countries continue to grapple with rising coronavirus infections. France reported a record number of new cases and in Italy and Germany infections spiked to the highest since April. We are also beginning to see increases in the number of COVID-19 related hospitalisations and deaths in Europe, while new cases in the US have started rising again.
ECB minutes. The ECB minutes from the September meeting suggest the tone of the discussions of the Governing Council was less optimistic than President Lagarde made us believe at the press conference. Notably the message that ‘there was no room for complacency’ in light of persistent weakness in inflation and the risk of second waves, indicated a slight bias towards further easing that Lagarde did not convey during the meeting. Overall, the minutes also stressed that uncertainty on the economic and inflation outlook remains unusually high and the Governing Council remains split on the need and form of more stimulus.
Equities. Bulls are now back in control of a market that is betting on a Joe Biden win, treating Trump’s comments increasingly as a side show. Even a remark by Trump that he would use tariffs on China in his second term did not rattle equity markets yesterday. Asian shares maintained the positive momentum this morning on the back of revived hopes for a US stimulus deal. Chinese markets jumped 1.7% after a weak long holiday, helped by news that China’s service sector recovery gathered pace in September with another increase in the Caixin services PMI to 54.8.
FI. Yesterday, we saw a decent rally in the European government bond markets and spread tightening between the periphery and core-EU on the back of the reduction in the Spanish government supply for 2020, Japanese investors buying more in Italy as well as dovish comments in the ECB minutes. We expect to see more steepening pressure on the US yield curve as President Trump made a U-turn on the fiscal stimulus bill. This means the pressure remains on the long end of the US Treasury curve and thus on the German yield curve and EUR swap curve.
FX. Another risk-on day sent both EUR/NOK and EUR/SEK lower during the day (0.4% and 0.3%, respectively). EUR/USD was still trendless yesterday, trading between 1.17-1.18. The same was true for EUR/GBP, which continued to trade close to 0.91 on another day without significant Brexit news to move GBP either significantly higher or lower.
Credit. Despite good sentiment in equity markets, EUR CDS indices were slightly wider yesterday. However, cash bonds did better, with IG cash 3bp tighter and HY cash 4bp tighter. We could be in for more cash bond outperformance over the coming weeks when the primary market will be closed due to silent periods.
Nordic macro and markets
In Norway, core inflation surprised on the upside over the summer, climbing to 3.7% y/y in August. We believe that imported inflation peaked with the strong demand over the summer and will now pull core inflation down to 3.5% y/y in September. Looking ahead, there is still the prospect of a gradually stronger NOK and lower wage growth bringing reduced inflation.
We expect Swedish household consumption continued to recover in August, albeit at a slower pace than in recent months and roughly in line with the 0.7% m/m advance that we got for the activity index yesterday – NIER indicators suggest another consecutive improvement, whereas retail and car sales dropped slightly. We continue to see a sharp Q3 GDP reading at around 5% q/q.
In Denmark the week closes with the August numbers for exports, which are currently one of the greatest uncertainty factors in the Danish economy. Our export barometer generally indicated growth across Denmark’s export markets in August but compared with the depth of the crisis, growth looks rather feeble. The Danish krone is trading at a 10-year high, which would have squeezed exporters further. Nevertheless, the trend for exports is currently up, though the starting point was low, and uncertainty remains high.
