Market movers today
Today’s key event is the US election, where our base case remains a Democratic clean sweep. One of the key states to follow is Florida that is expected to deliver a result early Wednesday morning as it has already started to count mail votes. Trump cannot win without Florida but Biden can still pull it off without it, so a Trump victory in Florida may imply that we won’t know the election result for a couple of days. We discussed this further in our US Election Monitor: When will we know the winner? Well, that depends…, 30 October.
We are hosting two webinars on Wednesday morning. One in English at 09:00 CET and one in Danish at 10:00 CET (see links for Skype details). No registration is needed. Both webinars will be recorded and published.
Besides that not much on the agenda. Keep an eye on the Brexit negotiations, however, which seem to move in the right direction. The ambition is still to reach an agreement in mid-November.
We also get Danish FX Reserves data for October today at 17:00 CET.
The 60 second overview
US ISM manufacturing rose to 59.3 in October from 55.4, higher than the consensus expectation of 56.0, signalling that the pace of recovery in the manufacturing sector is accelerating. It is worth highlighting the employment index that rose to 53.2 – it was the first time since July 2019 it was above 50, thus indicating manufacturing employment gains.
Oil rebounded to USD39/bbl yesterday on positive risk sentiment and the news that OPEC+ could be mulling delaying planned output hikes by three months. Russian producers yesterday met with the Russian oil minister to discuss this option. OPEC+ is set to meet on 30 November-1 December.
Joe Biden, the Democratic presidential candidate, has a 61% chance of winning the presidential election tonight according to the latest update from prediction markets.
FI. Positive risk sentiment, lower yields and wider EGB spreads (albeit not by much); those were yesterday’s headlines at which rates markets were trading cautiously ahead of the US election. The Bund spread widened 1bp to 37.7bp. In last week’s Reading the Markets EUR, we took a look at the risk to EU government bonds (specifically Bunds) from the US election. We expect that longer-dated US yields would rise on the back of the fiscal expansion proposed by both Trump and Biden. However, with the Federal Reserve on hold and a dovish ECB plus QE being much larger than the QE in 2016, the spill-over effect is much less than in 2016.
FX. Despite a strong session for risk, FX moves were very limited in the start of the week. EUR/USD grinded a little lower towards the low 1.16s, while both EUR/SEK and EUR/NOK ended yesterday’s session roughly unchanged. As for the US election, our view remains that a Democratic sweep in the US election could send the cross towards the high end of the 1.15-1.20 range.
Credit. Sentiment turned more positive yesterday when iTraxx Xover and Main tightened 14bp and 3bp, respectively. Cash bond tightening was more modest at 1bp and 2bp for IG and HY, respectively.