Market movers today
- Today’s agenda is quite light ahead of tomorrow’s FOMC meeting. Today, Merkel, Macron and Von der Leyen will speak at the (virtual) WEF in Davos. IMF will update its world economic outlook.
- After Italian PM Conte announcing his resignation yesterday night, markets will focus on Italian politics again (more below).
The 60 second overview
Good and bad vaccine news. Let’s start with the good news: yesterday, Moderna released a press statement saying that its vaccine is fully effective versus the UK variant (B.1.1.7) and still overall effective versus the South African version (B.1.351) although to a lesser extent. Moderna writes further that the company will test two things in order to make the vaccine more effective also versus the South African version. One is whether another additional booster shot of its mRNA-1273 vaccine will increase neutralising titres further. The second is to test another booster shot called mRNA-1273.351 with strain-specific spike protein, which is advancing into pre-clinical and phase 1 studies. Other positive news received yesterday is that a week after the full Pfizer vaccine (second dose) only 20 out of 128,000 people got COVID-19 and none with severe symptoms or in need of medical attention.The bad news is that Bild ($) writes the German government expects EMA to only approve the AstraZeneca vaccine for people under 65 years, as the vaccine only has 8% efficacy among over 65 years old ahead of the approval meeting on Friday. However, an AstraZeneca spokesperson has pushed back saying this is incorrect. The EMA is set to discuss the AstraZeneca vaccine on Friday and notably the EU and developing countries are expected to be the main receivers of the vaccine should it be approved. Also note that the EU has threatened AstraZeneca with an export ban after the announcement that deliveries will be cut.
US stimuli. As US President Biden will be open to seek broader agreement on the additional fiscal spending package, the timeline may suggest an approval in the course of March. Overnight, Asian equity markets traded heavy on this.
Italian politics. Italy’s PM Conte announced last night that he will resign today. During the past two weeks (since the IV party led by Matteo Renzi pulled its ministers) Italian politics have been subject to quite some turmoil after discussions about the usage of the EU recovery fund money led to a collapse of the government. However, Conte’s resignation should be seen as an attempt to have yet another go at heading a new government rather than losing a Senate vote later this week. President Mattarella is expected to give Conte the first shot at forming a new government.
Equities. Markets very mixed yesterday, with European stocks suffering as the rotation back into growth continued for the seventh day in a row. Defensives outperformed cyclicals and the US yield curve continued its flattening. This morning the US 10Y yield is at 1.04% and it seems like the army of central bank officials out earlier this month have been successful in their verbal intervention. In the US Dow -0.12%, S&P 500 +0.36%, Nasdaq +0.69%, Russell 2000 -0.25%. Energy, financials, industrials, materials all lower, while utilities and consumer staples led gains. Asian markets are lower this morning together with US futures, while European ones are flat.
FI. Yesterday recorded a strong rally in EGB space, led by BTPs already from the morning on weak risk sentiment on concerns about the European recovery. The ECB’s PEPP purchase volume, which settled as of Friday last week, showed that net purchases were EUR13.2bn, which is well below the EUR18bn the week before. It is too early to conclude that the ECB has not focused on BTPs after the Italian turmoil – and notably spread widening on Thursday/Friday.
FX. Yesterday, markets started to consider the idea the euro area’s recovery might not be too strong and EUR/USD jointly with European assets underperformed others. NOK was among the biggest loser in FX majors space with EUR/NOK temporarily moving above 10.40.
Credit Credit markets did not escape the overall poor risk sentiment yesterday where iTraxx Xover widened to 263bp (+10bp) and Main to 51bp (+2bp). As could be expected, cash bonds moved less fiercely, with HY widening around 4bp and IG overall unchanged.