Market movers today
- Europe. European leaders will gather for a video conference today. Originally scheduled to discuss the co-ordination of COVID-19 responses, the meeting is likely to focus on breaking the latest gridlock in the EU budget and recovery fund approval, after Hungary and Poland on Monday stalled the ratification process on concerns about the rule of law mechanism. Also look out for comments on the lack of Brexit progress.
- Norway. Today brings the Q4 oil investment survey.
- Sweden. The Labour Force Survey for October (including hours worked) is today’s key release.
The 60 second overview
Pfizer is getting ready to fill for Emergency Use Authorisation (EUA) ‘within days’. Pfizer released its final late stage phase 3 trial data yesterday showing an efficacy of 95% (162 out of a total of 170 COVID-19 cases and nine out of 10 severe cases were in the placebo group). The vaccine showed a similar degree of efficacy across ages, gender and ethnicity with limited side effects. Pfizer and BioNTech plan to apply for EUA ‘within days’, as they now have two months of follow-up safety data.
Risk trapped between bad short-term outlook and better long-term outlook. The announcement from Pfizer supported risk appetite initially but e.g. US equities ended the day lower, as the COVID-19 situation continues to deteriorate in the US with total deaths now above 250,000. We have started to see more restrictions being imposed across states, as it gets colder (just lagging Europe a bit). The latest development is that New York City has closed down schools due to the increasing number of new cases. Risk still seems trapped between a negative near-term outlook (high virus transmission in the northern hemisphere) and more positive medium-term outlook (vaccines).
EU recovery fund. The lines are likely to be drawn sharply today at the EU heads of states’ videoconference call after France last night signalled that it is prepared to cut out Poland and Hungary from the EU budget if they do not accept the rule of law mechanism put as a condition in the EU recovery fund/budget. The French indication comes after both Poland and Hungary have threatened to veto the budget if the mechanism is not removed as they see it as unduly and arbitrary interference in their domestic policy matter. We think that Germany will try to broker a compromise between the two sides, but negative headlines today may be negative news for PLN and HUF.
Markets overnight. The slightly risk-off sentiment continued overnight with Nikkei 0.64% lower, S&P 500 marginally down, US 10Y Treasury yields declining 2bp (now trading at 85bp versus nearly 100bp last week) and oil down.
ECB buy green or buy neutral? ECB president Lagarde and other top ECB officials have argued that the ECB should take the climate into account when buying bonds as part of the ECB’s QE programme. Bundesbank President Weidmann is rejecting this. See FT.
Equities. US equities closed down for the second consecutive day as short-term concerns about the coronavirus (US passing 250,000 deaths, NYC closing schools) overshadowed long-term relief on the same (Pfizer informed its vaccine was 95% effective and no side effects as it now applies for approval). Thanks to energy losing, defensives still underperformed and overall sector performance was scattered (with all sectors in red). US also again underperformed Europe/Nordics that closed higher earlier in the day. Asian markets are mostly lower this morning, with futures also in red, although just barely.
FI. There were modest moves in the European bond markets yesterday as sentiment changed on the back of the news regarding infections that continue to rise versus positive news on the vaccine. 10Y German government bond yields closed more or less unchanged after a positive opening where yields declined. 10Y US Treasuries yields rose yesterday, but declined later in the evening. This morning the US Treasury yield has declined in Asian trading hours.
We expect the range trading to continue in the European government bond market while we wait for more firm news that infections decline and/or more firm news on the vaccine. However, the ECB is expected to continue to ease monetary policy on the back of comments from a string of ECB officials including Lagarde.
FX. On a day yesterday with positive vaccine news from Pfizer, we saw risk rallying with EUR/GBP, EUR/SEK and EUR/NOK all moving lower (to 0.893, 10.19 and 10.69, respectively). Once again, EUR/USD was insensitive to the positive news from risk with EUR/GBP ending the day yesterday more or less where it started.
Credit. High-beta outperformed low-beta in credit markets yesterday where iTraxx Xover tightened 5bp (to 281bp) and HY cash tightened 2bp while Main was unchanged at 50bp and cash IG also flat on the day.
Nordic macro and markets
In Norway, today brings the Q4 oil investment survey. We are seeing various signs of activity having picked up as indicated by the previous survey, thanks to slightly higher oil prices and changes to the taxation of the oil companies. Therefore we do not expect much change to the picture painted last time around of investment activity falling moderately this year and more markedly next year, around 10-12%.
In Sweden, interest in the Labour Force Survey usually focuses on relative unemployment (our October forecast is 9.0 %, sa), but this time the development of hours worked is more interesting as it provides a first glimpse of GDP developments going into Q4. Hours actually dropped slightly already in September. As COVID-19 cases did not start to surge until the second half of October, it may be hard to draw a conclusion, however. In addition, we look at short-week furloughs as these are interrelated with layoffs.
As usual on Thursday, the Riksbank buys covered bonds. This time SEK5.5bn in 2023 and 2024 maturities.
