Market movers today
- Not too much on the global agenda today. We monitor the Brexit negotiations closely although it does not seem likely we will
- have a deal on this side of Christmas, not least because the UK is now occupied with containing the new strain of COVID-19.
- In addition, we will follow the distribution of the Pfizer vaccine in the EU after it got approved yesterday.
- Sweden releases a big batch of data today with NIER confidence indicators and retail sales being the most important.
The 60 second overview
The US Congress finally passed the USD900bn COVID-19 relief bill with the Senate approving it last night. Among other things the bill includes USD600 payments to most Americans, a USD300 enhancement of jobless benefits and extension of the enhancement by 11 weeks that unemployed can receive benefits, see CNN for more details. The passing of the bill was widely expected and had little market impact.
Brexit deal or not? It remains unclear where the Brexit saga ends but yesterday evening a story broke that PM Boris Johnson is now willing to compromise further on fishing rights suggesting an EU quote cut of 33%, although the EU says it cannot go higher than 25%, see Bloomberg. At the moment, we doubt a deal will be finalised on this side of Christmas but think a compromise is more likely between Christmas and New Year.
Pfizer authorised in the EU. As expected, the EMA recommended authorisation for the Pfizer vaccine yesterday and the EU Commission gave the vaccine its final approval yesterday evening. The vaccination process is now about to start but most likely not until 27 December. The start of the vaccination process in the EU does not change the near-term outlook as most of the northern hemisphere is struggling with a high number of COVID-19 cases and restrictions.
Equities. Any buy-on-fact trading resulting from the US stimulus bill did not materialise. Instead, a mutation of the coronavirus in the UK, coupled with Brexit and positioning fears took away the shine and sparked a sharp sell-off. The US reversed some of the weakness, though, and S&P 500 closed down 0.4% and Dow up 0.1%. After exploding 40%, VIX settled at 25 after trading near 20 last week. Asian markets and US futures are mostly lower this morning, but only mildly so, with most markets down about -0.5%.
FI. Yesterday’s risk-off mood led the UK yields drive global yields lower initially. However, yields recovered during the day and euro government bonds ended broadly unchanged. Should the Brexit situation end with a hard Brexit we expect BoE to cut the policy by 60bp to -50bp at the January meeting, although an emergency cut cannot be ruled out. With UK approaching 0%, the alternative to Bunds and treasuries is becoming less attractive. We expect a similar trading session to yesterday, i.e. in a tight range with sensitivity to Brexit and COVID-19 news.
FX. Yesterday the GBP was on track to have one of its worst day since March. It made a comeback yesterday evening, as a story broke that PM Boris Johnson had made another offer to secure a Brexit deal. Similarly, EUR/USD ended the day a mere blip lower. In all likelihood, at the moment, it seems like a no-deal Brexit is the only way to get a bit of (broad) USD strength. For EUR/USD, we target 1.24 in 1M on expected further improvements.
Oil. The oil price dived on concern that the new virus strain will hurt oil demand in the coming months. Despite some improvement in risk sentiment during the session, the oil price failed to recover and is still trading USD2 below Monday’s level.
Credit. Sentiment in credit markets soured yesterday, with iTraxx Xover widening to 263bp (+19bp) and Main to 52bp (+4bp). Cash bonds did somewhat better, with HY widening c.12bp and IG more or less unchanged.
Nordic macro and markets
Quite a lot of Swedish data out today. First off, NIER’s Economic Tendency Survey will probably reveal a continued pressure on leisure sectors, whereas manufacturing and business-related services should do well. On the aggregate level, it will probably come out ok, but it will be interesting to look out for further diverging outcomes of business-related services and consumer-related services, where the latter is likely to continue to suffer. Secondly, we believe November’s retail sales will come out at 0.0/3.5% (qoq/yoy), which is at the upper end of consensus estimates. Finally, we also receive PPI, Statistic Sweden’s business sector ‘sales indicator’ and wage data from the Swedish National Mediation Office, but the market will probably focus on the survey data and retail sales.
