Market movers today
ECB. Today ECB’s two-day annual Forum kicks off with a significant number of ECB officials speaking. Draghi has previously used this occasion to signal policy changes. However, we doubt such messages will be conveyed this year due to ECB’s pre-announcement of new measures in December.
Sweden. We will look for the Prospera inflation expectations, (see more below).
The 60 second overview
Risk rally. The risk rally that was triggered by the Pfizer vaccine news Monday continued yesterday and overnight. Equity investors continue to pile into value stocks and out of ‘stay-at-home’/growth stocks. Nikkei is up 1.8% this morning and equity futures point to a positive opening in the US, whereas the picture is slightly negative for Europe. Global fixed income markets have also stayed under pressure. 10Y UST is now at 0.98% and it seems just a matter of time before 1% will be passed.
More of the same. We should expect more of the same the next couple of weeks or even months but it will not be a straight line. There are still many unresolved questions regarding the vaccine. Markets might also start to worry that central banks might become less eager to provide stimuli and lockdowns are set to continue as the numbers of infections continue to rise globally.
Singles day. Bloomberg reports that the first indications of today’s ‘Singles day’ sales in China are breaking new records at Alibaba. The Chinese consumers are happy to spend. Note that Alibaba is down 9% this morning as China has released a new draft of anti-monopoly rules for online platforms. It comes after last week’s delayed IPO of Ant group.
EU Stimuli: Yesterday afternoon the EU member states negotiators struck a deal with the European parliament on the seven-year spending plans.
Oil. Brent oil has continued to rise overnight and is above USD44 a barrel this morning for the first time since the beginning of September. The growth optimism triggered by the vaccine news and a surprise decline in US stocks have led the rally.
Inflation expectations. We note that 10Y US breakeven is up 10bp to 1.76% since the Pfizer news and at the highest level since late August. 5Y5Y EUR inflation is also at 1.20%, back at August levels, though still far below the ECB target.
Equities. Mixed performance in equities yesterday with substantial sector and style rotation continuing. Value stocks outperforming growth stocks with an astonishing 3.2% and small cap outperforming large cap. Energy was the best sector yesterday while tech stocks suffered. The positive tone continues in Asia this morning, while futures in the western world are relative flat.
FI. Global bond yields continued to rise yesterday but at a more modest pace and the Bund ASW-spreads stabilised after the collapse on Monday. 10Y Treasuries rose some 4bp and the 2-10Y curve steepened 3bp. The 10Y US-German yield spread has stabilised at 145bp after having widened until last week.
FX. In some otherwise relatively quiet FX sessions yesterday, EUR/GBP temporarily fell close to 0.88 after the controversial Internal Market Bill was rejected by the House of Lords. EUR/USD steady just above the 1.18 mark while Scandies held on to recent gains. Meanwhile, oil rose further as Monday’s positive vaccine news continued to support.
Credit. After an intense risk-on Monday, yesterday’s markets were calmer. After a small correction initially, spreads in both indices and cash ended the day largely unchanged. Itraxx main ended in +51bp while iTraxx Xover landed in +291bp. The primary markets remain open with several new deals being announced.
Nordic macro and markets
Sweden. Money market CPIF expectations in November are likely to have dipped further on the back of a weak September CPIF outcome. However, especially important to follow the 5Y outcome.
Norway. Today at 11:00 CET, Norway will tap NOK2bn in the NGB 2.0% 05/23 and conduct a buyback auction in NGB 3.75% 05/21 at 9:15-10.00 CET. For those who are able to take part in the buyback auction, we recommend doing so and subsequently buy the 2.0% 05/23 for a yield pickup of 20bp. Alternatively, we see value in buying NGB 2.0% 05/23 asset swapped given the current upward pressure on Nibor fixings and the extra demand from the buybacks in NGB 3.75% 05/21.
Weekly NAV labour market statistics yesterday showed an increase in Norwegian unemployment – the first clear rise since the middle of April.The rise was primarily driven by a renewed rise in furloughed workers as new restrictions in not least Bergen and Oslo in the service sectors have set in. This goes to show the difficult balancing act for Norges Bank. On the one hand, we should expect a setback in activity and labour market data in the coming months. On the other hand, positive vaccine news and a continued hot housing market have increased the topside risks. For now we should follow the international news flow on vaccines closely as this will be crucial for Norges Bank’s December decision.
Also yesterday the Norwegian government announced a new fiscal package lifting the (expected) oil adjusted structural deficit to NOK331.1bn. This is up from the NOK313.4bn estimated in the original fiscal budget from early October. The planned spending amounts to roughly 3.2% of the oil fund and hence above the fiscal rule. This was not a big surprise.
