Market movers today
At the time of writing, we still do not know who has won the presidential election but the indication is that Biden might be able to pull it off. Perhaps even more interesting, the Senate election remains extremely close and it seems that who is going to win the majority in the Senate will be decided at two special Senate elections for both seats in Georgia, as no candidate has been able to get more than 50% in both elections. If the Democratic Party wins both seats, they would have enough seats to have the majority in the Senate (as the Vice President is decisive if both parties have 50 candidates each). If the Democratic Party has the majority in the Senate, it is much easier for the party to pass both a short-term relief package and larger changes to economic policy (both in terms of tax changes and increased spending on infrastructure and green energy, among other things). This also means that markets may be in limbo for two months if we do not get other news in the meantime.
The US jobs report for October is due out at 14:30 CET and is expected to show that the employment recovery continued but that employment is still significantly below the level in February, putting politicians under pressure to get working on another relief package to support businesses and employees.
This morning, production data for September for Norway, Denmark and Germany are due out 08:00 CET.
The 60 second overview
Fed meeting. The Federal Reserve maintained its Fed funds target range unchanged at 0.00-0.25% and still says that it is buying bonds ‘at least at current pace’. Fed chair Powell repeated that the Fed will welcome more expansionary fiscal policy without tightening monetary policy but otherwise the Fed meeting did not deliver any news of significance.
Macro. Out of concern that a new COVID-19 strain is spreading from mink to humans, the Danish government has decided to end mink production in Denmark, at least temporarily, and has imposed a strict lockdown on parts of Northern Jutland where mink farms are concentrated. The area represents 5.3% of Danish employment and the total impact might be enough to halt economic growth in Q4 as a whole. The government expects a cost of ‘billions’ of DKK.
Equities. Stock markets saw another strong lift yesterday with close to 2% gains in the US. The rally faded a bit overnight, though, as the S&P future shed 0.6% driven by declines in tech stocks. Short-term profit taking and the possibility of the Democrats taking the Senate seem to have weighed on markets.
FI. US Treasury yields have stabilised after the significant decline on Wednesday even though we still do not know who is going to be next US president and who won Congress. In Europe, German yields have also stabilised and the 10Y spread between Italy and Germany is slowly tightening and is back at the 130bp-level despite more lockdowns in Europe. Italy and Greece are up for review by Moody’s tonight, but we do not expect to see a change in the rating or the outlook.
FX. The repricing of a Biden US presidency alongside encouraging EU budget news have lifted EUR/USD above 1.18. Broad-based USD weakness has supported EM currencies and Scandies with EUR/NOK below 10.90 and EUR/SEK below 10.30. Also Eastern European currencies have been among the clear winners.
Credit. Credit markets saw very strong spread compression yesterday when iTraxx Xover tightened 19bp and Main 4bp, thus closing in 320bp and 54bp, respectively. Cash bonds also tightened substantially, with HY 20bp tighter and IG 3bp tighter.
Nordic macro and markets
Swedish budget balance numbers for October are released. The outcome should be matched against the Debt Office forecast, which is a SEK45.6bn deficit according to the latest government borrowing report.
As expected Norges Bank (NB) yesterday left rates unchanged while reiterating the verbal forward guidance from September: ‘The Committee’s assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at today’s level for some time ahead’. NB is facing a domestic economy developing as expected, while both downside risks (COVID-19) and upside risks (domestic housing market, debt growth) have risen since the last Monetary Policy Report. However, over the past few years, NB has tended to give very little news to markets at these interim meetings, which was also the case yesterday. In sum, we have to wait for December to get new forecasts. Norwegian markets’ strategy short term is all about global COVID-19 news flow and the US election result.
