Markets:
European stock markets maintain yesterday’s huge gains on the back of Pfizer’s game-changing Covid-vaccine results. The outcome changes the market narrative. The next phase in the coronacrisis will likely be mass vaccination rather than a new wave of infections early next year. The EuroStoxx 50 for a second session straight tries to take out the July recovery high at 3451. Core bonds yield hold their upward momentum as well with investors dusting off reflation trade. US yields add 0.8 bps (2-yr) to 3.3 bps (10-yr). German yields increase by 0.8 bps (2-yr) to 2.3 bps (10-yr). Apart from the reflationary trade, bond investors might in the medium term also start recalibrating expectations around monetary policy as that narrative will change as well. Several emergency measures could fade sooner than expected given light at the end of the Covid-tunnel. The dollar’s momentum is already fizzling out with EUR/USD changing hands just above 1.18. USD/JPY stabilizes between 105 and 105.50. Eco data had no influence on trading today. November German ZEW investor sentiment deteriorated more than forecast in November, both in the current situation index (-64.3 from -59.5) and in the forward looking expectations component (39 from 56.1). As we finalize our report, Bloomberg reports that the EU negotiators reached a deal on the bloc’s long term spending plans, moving closer to finalizing its €1.8tn budget and stimulus accord.
Sterling outperforms today. EUR/GBP approached important support at 0.8864. The UK House of Lords overnight removed the most controversial parts of PM Johnson’s UK internal market bill. That was one of the EU’s red lines in trade talks. Sterling’s rally started later though with a technical acceleration after giving up the early November low around 0.8950. The move suggests that investors interpret the brexit radio silence as positive news ahead of the final November 15-16 deadline. UK eco data included the labour market report. The unemployment rate rose further to 4.8% with employment dropping by 164k. The UK government’s last-minute decision to extend the furlough program (until March 2021) suggests that job axing will again slow from next month onwards.
The EU sold 5-yr and 30-yr social bonds today to help pay for its €100bn SURE-programme (Support to mitigate Risks in a Emergency). The total order book was in excess of €140bn, allowing the EU to print €8bn and €6bn respectively. The EU’s inaugural bond sales (10y & 20y; October 20) drew a record order book of €233bn, the highest ever. Today’s bonds were priced to yield MS -9 bps (5-yr; MS -7 bps guidance) and MS+21 bps (30-yr; MS +24 bps guidance). SURE and next year’s €750bn Pandemic Recovery Fund will propel the EU to the top five biggest European issuers, alongside Italy, France, Germany and Spain.
News Headlines:
The EU reached the preliminary conclusion that Amazon breached EU antitrust rules by distorting competition in online retail markets. They argue that Amazon systematically relies on non-public business data of independent sellers who sell on its marketplace, to the benefit of Amazon’s own retail business, which directly competes with those third party sellers. The EC opened a 2nd formal antitrust investigation into the possible preferential treatment of Amazon’s own retail offers and those of marketplace sellers that use Amazon’s logistics and delivery services.
The Polish central bank (NBP) released its latest inflation report after keeping the policy rate stable at 0.1% last week. The NBP expects the economy to contract by 3.5% this year, compared to -5.4% in July. The revision mainly results from an upward change to Q2 2020 growth with Q4 probably becoming tougher than earlier anticipated. Inflation forecasts were upwardly revised for 2020 (3.4%), 2021 (2.6%) and 2022 (2.7%). EUR/PLN changes hands near 4.50, stabilizing after the November rally (in lockstep with risk sentiment).
