Market movers today
- There are few market movers today apart from a couple of speeches by Fed and ECB officials.
- In the afternoon, US Empire Manufacturing PMI for November is released.
The 60 second overview
Markets. The ‘stand-off’ between rising infections and hospitalisations and the positive vaccine news continues to dominate markets. Hence, it was a very volatile week in the global financial markets. However, we expect the volatility to come down as negotiations on more fiscal stimulus from the US will begin again given recent comments from US President Trump.
Furthermore, we will have a string of speeches from ECB, Bank of England and Federal Reserve officials during the week. Hence, we will be looking for more guidance on monetary policy and the need for fiscal stimulus, which should contribute to curbing the volatility in the markets. US retail sales are due for release on Tuesday and UK retail sales are released on Thursday.
This morning we had Japanese GDP numbers for Q3, which surprised modestly on the upside. The GDP was expected to rise 4.4% q/q in Q3, but actually rose 5%. Chinese industrial production for October also surprised positively. Furthermore, a string of Asian nations signed a trade agreement during the weekend, which should be positive for the long-term growth outlook.
Brexit. The negotiations continue this week and this week is expected to be crucial for reaching an agreement, but extra time could be ‘squeezed out’ if the EU and the UK are close to reaching a deal according to British officials.
COVID-19. More positive vaccine news this week? Pfizer may file for an emergency use authorisation (EUA) as early as this week (it needs two months of safety data to show there have not been any major side effects) and Moderna (based on the same mRNA technology as Pfizer’s vaccine candidate) is also expected to publish interim results this week. We have not heard from University of Oxford/AstraZeneca yet but they should also publish results soon. When the companies start to file for EUAs, we should expect it will take a few weeks before the Food & Drug Administration grants it but it would not change that we are on track of getting the vaccination process started in December.
US equities ended a turbulent week on a high note on Friday, with most US indices up, but after a lacklustre European session where most markets closed with only minor movements. With US long yields (10Y) seemingly stabilising though, around 0.90%, thereby confirming a steepening over last week, it was time again for Value-sectors like Energy, Industrials and Materials to take a modest lead in the US, with IT, Health Care and other Tech lagging. Asian markets are continuing the positive trend this morning, all clearly higher on upbeat Japanese and Asian data.
FI. It has been some very volatile weeks for the global bond markets after the US election, where the 10Y US government bond yield has traded between 0.7% to almost 1%. We have also seen some volatility in the 10Y German government bond yield that has traded between -50bp to 65bp as the market is trying to cope with rising infections and hospitalisations from COVID-19 as well as positive news on finding a vaccine.
We expect that volatility to come down as focus turns towards more fiscal stimulus from the US as well as more easing from global central banks. However, more lockdowns and uncertainty regarding the size of the US fiscal stimulus package can add to the volatility short term.
FX. Friday was a quiet day in FX space with EUR/USD, EUR/NOK, EUR/SEK and EUR/GBP moving sideways. With more vaccine news expected to be released this week, the question is whether we will see more tailwind for cyclically-sensitive currencies again after the initial boost faded by the end of last week. On Friday we published our new FX forecasts, see FX Forecast Update: Light at the end of the risk tunnel, 13 November.
Credit. Credit markets continued the previous days’ muted action on Friday where iTraxx Xover tightened 1bp and closed at 299bp, while Main was unchanged at 52bp.
