Market movers today
- COVID-19 headlines and vaccine news will be on the markets’ mind today. In Europe some ECB speakers will be on the wires.
- US retail sales for October will show whether consumers remained in a spending mood despite rising virus numbers.
- Norway: we look for mainland GDP to have registered a record quarterly growth rate of 5.2% q/q in Q3 20.
- Sweden: the National Institute of Economic Research (NIER) is set to release an extra business survey on how turnover has evolved.
The 60 second overview
Markets. The positive news on developing a vaccine supported risky assets yesterday. Equities and safe-haven yields rose, while credit spreads tightened. The positive response comes despite rising infections in the US and the risk of more lockdowns. Sweden announced tougher lockdown measures yesterday and the German chancellor is also trying to impose stricter lockdowns in Germany.
The talks between the UK and the EU on Brexit continue and GBP got a modest boost after a UK newspapers reported that one of the UK’s top negotiators had told PM Johnson that they expected a deal with EU.
The oil price rose modestly as the market expects that OPEC+ will prolong the production cuts. The technical committee at OPEC+ suggested OPEC ministers to delay the rise of oil production in January 2021 with another six months.
Comments from ECB officials all indicated that it is ready to do more, but it will focus on ‘recalibrating’ exiting measures such as expanding the QE as well as extending the TLTROs given the uncertain economic outlook for the Eurozone. The Bundesbank was out saying that the German economy may stagnate or even shrink in Q4.
More positive vaccine news. As highlighted in yesterday’s morning mail, we expected more (positive) vaccine news this week and we got that already yesterday with Moderna’s announcement that an interim analysis shows a vaccine efficacy of 94.5% and that the vaccine also seems to protect people against severe COVID-19. As Moderna’s vaccine candidate is based on the same technology as Pfizer, Moderna’s results also make Pfizer’s results more credible (as they do not seem to be a statistical coincidence). One major advantage of the Moderna vaccine compared to Pfizer’s vaccine is that it can be maintained at much higher temperatures making distribution easier.
Joe Biden’s economic plan. Last night, President-elect Joe Biden presented his economic plan, which includes an idea of a national mask mandate (which, however, he probably does not have power to as President, but he can put pressure on state governors to impose it locally) and a big and ambitious relief package. Whether Biden can get the latter through Congress may depend on the outcome of the two special election runoffs deciding who will win the Senate majority. If the Democrats do not win both seats, the Republicans will continue to have the majority and hence we expect only a small relief package (as the Republicans then can block it in Congress).
Equities. Equities rallied yesterday, driven by another announcement about a successful vaccine, this time from Moderna. In doing so, markets again chose to overlook the rising number of infected and hospitalized, and instead focus on the potential recovery next year. Markets were clearly higher in Europe as well. The reaction was milder than compared to the one triggered by Pfizer´s news week ago, but still managed to push some indices to all-time highs (Dow Jones), and continued to drive the rotation out of Growth and into Value stocks, with Energy, Financials and Industrials in the lead. Asian markets are more mixed this morning, with US futures slightly lower.
FI. A bit of a volatile day in the European fixed income markets as 10Y German yields rose some 4-5bp intraday before ending Monday more or less unchanged from the opening level. The move was driven by a rise in the US Treasury yields, which shortly rose 4-5bp to 0.93 before falling back to 0.9%. This is related to the more positive news on developing a vaccine despite the rising infections and risk of more lockdowns.
FX. We note EUR/USD was fairly indifferent to news that Moderna is moving towards a real vaccine and actually went lower on the announcement. This is similar to what we saw after the Pfizer announcement. The cross remained above the 1.18 mark. NOK and SEK were two of the main beneficiaries yesterday increasing by 1.0% and 0.6%, respectively (versus EUR), as risky assets rallied. EUR/GBP did not move much, as Brexit risks are weighing on GBP despite positive vaccine news
Credit. Along with European equities, the EUR credit market saw strong performance yesterday where iTraxx Xover tightened 15bp to 284bp (the lowest level since 3 March) and Main 3bp to 50bp (the lowest since 25 February). Cash bonds performed less strongly, with IG c.2bp tighter and HY around 8bp tighter.
Nordic macro and markets
Sweden. The National Institute of Economic Research (NIER) is set to release an extra business survey, something it has been doing since the outbreak of the coronavirus. These surveys are different from the regular ones in that they basically ask businesses how turnover is evolving compared with a normal situation. Recent surveys show an improvement compared with the sharp decline in the spring but considering the rapid rise in new cases and tighter restrictions, there may very well be setbacks in certain sectors.
The Swedish government announced Monday that the cap for public gatherings is lowered to eight people (previously 50 and in some regions 300). This is a prohibition by law and is effective from 24 November and for four weeks but can be extended further. The government emphasised that this should be seen as a norm also for activities that cannot be legally restricted such as private parties, non-essential shopping etc.
Norway. In Norway, growth slowed slightly in August after three months of strong contributions from the sectors that were shut down in the spring. We reckon that this trend continued into September, but that it is still too early to see any negative effects from higher infections and new restrictions. We therefore expect mainland GDP to climb 0.5% m/m in September, giving growth of 5.2% q/q in Q3.
