Markets
The Dow and the S&P equity indices tested all-time record levels yesterday after drug maker Moderna announced positive results of a next Covid-19 vaccine. European equities aren’t at similar levels yet, but some also tested important technical levels. The EuroStoxx 50 set a new post-corona intraday top, but failed to hold that into the close. Maybe that was already a harbinger for some modest profit taking today. Asian markets, where the economic recovery, due to lower infections, is seen less dependent on a vaccine, showed a mixed picture this morning. The narrative for European and US equities also turned more balanced as the positive LT impact of a vaccine is still counterbalanced by ongoing high levels of inflections slowing the economic rebound in the months ahead. This narrative was reinforced as US October retail sales missed expectations by quite a big margin (0.1% control group versus 0.5% expected, with also a downward revision of the previous month). The EuroStoxx 50 declines 0.4%. The Dow and the S&P are losing 1.2%/0.8% at the open. Of late several Fed and ECB policy makers indicated that ample policy support will still be needed for quite some time. Today ECB’s Visco warned not to remove policy stimulus too early. The prospect of the EMU raising asset purchases and/or expanding easy financing conditions, continues to pressure EMU funding costs. ST Euribor tenors are again nearing record lows (Euribor 3M currently at -0.522). Core bond remain well bid too. Core yields already hardly gained during the risk-on yesterday and declined further after the US retail sales. The US curve flattens with yields easing between 0.4 bp (2-y) and 3.5 bp (30-y). German yields decline between 0.2 bp and 2.0 bp (30-y). Intra-EMU spreads are little changed to marginally tighter (-3bp for 10-y Greece). The rally of ‘cyclical’ assets yesterday also propelled industrial commodities like copper or oil, but they also fell prey to profit taking (Brent crude drifting back to $43.25p/b).
USD moves again were rather modest. Even so, the ‘by default’ USD direction remains ‘south’. The US currency didn’t profit from the cautious risk-off in Europe this morning and even lost slightly further after the release of poor US retail sales this afternoon. EUR/USD is gain testing/nearing the 1.1881/1.1920 resistance area. The USD/JPY decline also accelerated after yesterday’s temporary spike north of 105. The pair is changing hands in the 104.15 area. Sterling gained a few ticks against the euro (EUR/GBP 0.8960) but is overall limited given multiple indications that a Brexit deal might be finalized in the near future (early next week). Among the smaller currencies, the forint and zloty are regional underperformers after they vetoed the EU budget and recovery fund on a dispute on a rule of law clause in the pay-out mechanism. EUR/HUF returned north of 360. The loss of the zloty is more modest but EUR/PLN again tests the 4.50 barrier. The Hungarian CB today as expected left its policy rates unchanged (base rate 0.60%). The 1-week depo rate remains the main ST policy tool.
News Headlines
Norwegian GDP rose 4.6% q/q last quarter after declining an upwardly revised 4.7% in the second quarter of this year. Excluding its vast oil sector, mainland GDP rebounded 5.2% q/q, up from -6% in Q2. All GDP components but investments (still -1.1% q/q) in Q3 recouped part of the losses in the ‘lockdown’ quarter. Year-on-year growth is still well below pre-pandemic levels (-3.2% for the Norwegian mainland economy). EUR/NOK was little changed at 10.76..
The Hungarian central bank (MNB) kept its policy and deposit rate stable at 0.60% and -0.05%. It raised its corporate Funding for Growth Scheme by 1000bn. The central bank closely monitors virus and vaccine developments. New restrictive measures probably halted the economic recovery in Q4 before picking up again next year. Regarding inflation, the MNB remains wary for risk aversion vis-à-vis emerging markets. It will therefore “keep the difference between the base rate and one-week deposit rate as long as warranted by inflationary risks”.
