Market movers today
- UK. Today we get the first estimate of Q3 GDP, which is likely to show a significant rebound after the big decline in Q2.
- US. In the US, October CPI figures are released.
- Speeches: ECB’s Lagarde, BoE’s Bailey and Fed’s Powell will be on a policy panel at ECB’s Forum at 17:45 CET.
- Sweden. Inflation data, see below.
The 60 second overview
Markets. Yesterday, we saw a ‘mild’ reversal of some of the moves across markets after Pfizer broke the positive vaccine news on Monday. Yields fell slightly across the curve in both the US and Europe. In the equity markets investors picked up tech and ‘stay-at-home’ stocks and took profit on value stocks, especially banks and travel-related stocks that had rallied the past couple of days. Brent oil also fell a dollar to USD44 a barrel and investors returned to the US dollar. The poor sentiment is likely to continue today as Asian markets are in red and futures are pointing to a weak opening in Europe and the US. All in all, the increase in COVID-19 cases across the globe overshadowed the positive vaccine news from Moderna.
COVID-19. The change in market sentiment likely relates to the worsening COVID-19 situation across the US with record-high number of new cases, record-high number of hospitalisations and increasing deaths. Yesterday Joe Biden’s COVID-19 advisors said that the US would benefit from a temporary 4-6 weeks’ lockdown. We expect to see more restrictions across the US near term. The number of deaths passed 50,000 in the UK and in Japan more than 1,500 cases were reported yesterday. It is the highest number of cases in Japan since August and media talk about a ‘third wave’.
Vaccine news. Moderna said yesterday that it now has enough data for making interim late stage phase 3 trial analysis. Moderna’s vaccine candidate is based on the same mRNA technology as Pfizer, so hope is high that Moderna’s results will show similar positive results. One advantage of the Moderna vaccine is that it can be stored at -20 Celsius degrees versus -75 for Pfizer’s vaccine. For more details see Reuters.
ECB. Lagarde’s ECB Forum speech clearly indicated that ECB’s recalibration in December will focus on the PEPP and TLTRO. While she did not rule out a rate cut, as all options are on the table, the €STR December pricing rose almost 1bp and currently markets are pricing less than 2bp of rate cut for the December meeting. Lagarde also warned that we could still see accelerating viral spread and tightening restrictions. No signs that the ECB is buying into any vaccine euphoria.
Equities continued higher on Wednesday though, with growth stocks regaining the leadership not least in the US. Still very mixed on sectors as investors are trying to figure out the aggregated economic and financial market impact of the vaccine news out on Monday. Energy stocks slightly weaker yesterday but still 14.5% higher than last week.
FI. European rate curves bull flattened yesterday, while US bond markets were closed for Veterans Day. Long end German yields declined almost 3bp after the final long-end supply from the German Finanzagentur.
FX. Sentiment in cyclical currencies was dented yesterday after little constructive virus news and tougher restrictions in the US. EUR/NOK edged higher, EUR/SEK steady while EUR/USD lost steam early in the day.
Credit. Only small movements in credit markets yesterday where iTraxx Xover widened 3bp, while Main was more or less unchanged. Cash bonds saw decent performance, with HY around 4bp tighter and IG 1bp tighter.
Nordic macro and markets
Sweden. It is the time of the month when all eyes are on inflation. We expect CPIF and CPIF excl. Energy to print 0.2% y/y and 1.0% y/y, i.e. 0.2 and 0.3 percentage points below the Riksbank’s forecasts, respectively. We expect core inflation to remain below the lower bound of the inflation target’s variation band over the entire forecast horizon. This is the consequence of record-low wage agreements (1.8% per year including the non-paid 6 month period from April and onwards) and the crawling appreciation of the SEK. As the pursuit of reaching the inflation target is currently suspended (due to handling the acute coronavirus implications for the real economy), we do not expect any Riksbank reaction until long-term inflation expectation drops further.
Finally, the Riksbank will buy SEK5.5bn in covered bonds in 2022 and 2023 maturities and the Debt Office will issue SEK0.5bn each in 5Y and 10Y linkers.
Norway. Yesterday’s monthly 3M F-loan auction from Norges Bank saw a very large interest of NOK46.6bn (fully allotted). As explained in yesterday’s edition the 3M tenor is now a much better suit for banks’ LCR requirements, which likely explains a big part of the rise from last month’s meagre NOK6bn take-up. USD/NOK forward points dropped 20 pips upon announcement. While this should keep a hand above Nibor fixings, we still see recent events as a ‘canary in a coal mine’ that we are gradually returning to the pre-COVID-19 liquidity environment.
