Still Waiting

Market movers today

The US election is still not settled and we may have to wait until tonight to have a clearer result. By then we should have outcomes from Nevada and Arizona. If Joe Biden keeps his narrow lead in the two states, he is set to become the next president. If he does not win both states he needs to win Pennsylvania but as it looks now he is going to win that state too. Georgia is also still in play and looks like an extremely tight race but Trump still has a small lead with few votes left to be counted. However, the Trump campaign made it clear last night they intent to fight very hard in the courts to get mail-in ballots in Pennsylvania and other states cancelled due to fraud and demand a recount in several states too. So the whole thing will likely drag out for a while.

Regardless, it seems the Republicans keep the Senate majority leaving us with the “Biden victory but divided Congress scenario”. That means that Biden on domestic policy will become a lame duck, i.e. no tax hikes, no infrastructure spending, no green energy spending and no health care reform. Senate Majorty Leader Mitch McConnell (Republican) sounded optimistic on reaching a compromise on another relief package but at the moment we are sceptical that the two parties can agree on a big, ambitious +USD2,000bn package. For more on our take on policy and market implications see our piece from yesterday Research US: Too close to call – Georgia, Wisconsin, Michigan and Pennsylvania to be decisive, 4 November.

This morning at 08:00 CET, the Bank of England announces its monetary policy decision. It will be interesting to see whether the BoE is moving in a more dovish direction like e.g. ECB last week. While negative rates are still being discussed, we expect the BoE to extend its QE buying programme by at least GBP100bn (currently the programme is set to end by the turn of the year) and the pressure has increased after the UK has partially locked down the economy again.

At 09:30 CET, we expect the Swedish GDP indicator for Q3 to show economic activity rose by 5.0% q/q (see more in Nordic macro and markets section).

At 10:00 CET, Norges Bank announces its monetary policy decision, where we do not expect any new signals (see more in in Nordic macro and markets section).

The EU Commission is set to release its updated economic projections at 11:00 CET.

Tonight at 20:00 CET, the Federal Reserve announces its monetary policy decision. While it is too early for the Fed to really have digested the election result, the pressure is increasing on the Fed to deliver more easing, as more fiscal aid has yet to arrive (which was pencilled in in the September projections) and other central banks are under more pressure as well. If the final Congressional election results show a divided Congress, we expect the Fed to increase its bond buying pace but probably not until after the meeting or at the December meeting. Still, the risk is that the Fed turns more dovish than in September when it did not do much.

The 60 second overview

Macro: The US vote count is still ongoing. In Pennsylvania Biden has won around 70-75% of remaining votes with still 11% left to count. That should be enough for him to eventually flip it his way as Trump’s lead is now down to 2.6 percentage points.

Equities: US equity futures have continued higher overnight and Asian stock markets are all seeing strong gains as well. US tech stocks had the strongest gains yesterday with Nasdaq up close to 4%.

FI: Yesterday’s reaction to the US presidential election was driven by the change probabilities of the POTUS/Congress setup. US Treasury yields ended 12bp lower and have declined another 2bp to 0.73% overnight. The reaction in European yields were more muted, yet still on a rollercoaster ride with Bunds touching -67bp intraday, some 5bp lower than Tuesday’s close, but ended 1.8bp lower on the day. With seemingly a divided Congress and Biden POTUS, it looks as we will end in a lame duck situation where Biden cannot drive domestic policies and as such limit the potential for a significant stimuli package that potentially could lead to higher rates. The Biden sweep trade (steeper curve in the US and Europe) which markets have traded in the past weeks will have a very hard time performing if the POTUS election ends as described above.

FX: On the re-pricing of a Biden Presidency we have seen EUR/USD rebound to 1.1740, EUR/NOK move below 10.95 and EUR/SEK towards 10.30. Also, MXN and Eastern European currencies have gained while RUB has been slightly on the back-foot as Trump no longer seems to remain in the White House. That said, in the big picture moves have been limited by the outlook of a divided Congress (even if it’s not a done deal yet).

Credit: Credit markets opened sharply wider from the morning, but improved significantly during the day, thus causing iTraxx Xover to close 10bp tighter and Main 3bp tighter. Cash bond prices also generally closed yesterday tighter, but less so than CDS indices.

Nordic macro and markets

In Sweden the Q3 GDP indicator (i.e. an advanced Q3 GDP without details) is the main focus of the day. We expect a 5.0 % qoq sa/-3.7 % yoy cal. adj. print, which is also the market consensus. If anything there is probably an upside to this (say 6 % qoq) as suggested by strong increases in for instance German and US GDP. A weaker outcome would put Sweden behind the US in terms of recovery and probably just slightly ahead of Germany. In addition, September PVI and activity indices will be released (both inputs to the Q3 GDP indicator).


Danske Bank
Danske Bank
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