Sun, Mar 07, 2021 @ 05:48 GMT
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Markets Turning Red AZN-EU Dispute Intensifies

Market movers today

  • Today we get a number of data releases, however focus will be more on the fragile market sentiment about the prolonged period of low activity notably in the euro area, as well as news on the AstraZeneca-EU dispute. We will receive confidence indicators for January in the Euro area. We also get the German inflation prints which will give a glimpse into the inflation volatility we will see near term as the temporary VAT reduction falls out.
  • In the US, the GDP report for Q4 is released, along with PCE core. Consensus expectations is at 4% qoq annualised, although we are slightly below consensus.
  • In Sweden, we get NIER’s January confidence survey, retail sales and the Labour market report.

The 60 second overview

Global macro: A heavy day for risk sentiment sent global equities and rates lower. The risk of a delayed roll-out of vaccine (and its deliveries) in Europe, combined with stalling talks on fiscal policies via the recovery fund in recent days has made markets uncertain about the strength and timing of notably the European recovery.

Vaccine: The dispute between EU and COVID vaccine producer AstraZeneca (AZN over the expected deliverables to EU) is intensifying. EU say that AZN is bound to transfer doses from its UK production plants as the EU production has been sold. AZN say that the lower than expected delivery is due to production problems at the EU facilities. The EMA is set to discuss the AZN vaccine tomorrow.

ECB: ECB rate cut speculation got revived on Tuesday on Bloomberg’s sources story on ECB examining the FX drivers, which got further ignited by Dutch Governor Knot’s saying ECB could cut the deposit rate and sources stories saying that ECB officials believe that markets underestimate the probability of a rate cut. Bunds yields went relatively quickly back to levels prior to the news, however front end pricing point added almost 1.5bp for a rate cut by year end (60% chance).

Unexciting FOMC meeting: With the Fed keeping both actual monetary policy and policy signals, the most interesting thing was that Fed chair Jerome Powell has received the first vaccine shot and expects to get his second “soon”. Unsurprisingly, Powell was asked about tapering and Powell repeated that any discussions on an exit strategy are “premature”. Markets did not react to the Fed meeting.

Equities: Volatility came back into equity markets yesterday with VIX rising 62%. Short squeeze frenzy making investors and not least hedge funds nervous about what the next target will be and hence de-leveraging escalating. Despite global stocks down almost 2% there was no strong spilt between defensives and cyclicals, hence also suggesting this has nothing to do with growth scares or weak macro data. US equities finished sharply lower, Dow -2.1%, S&P 500 -2.6%, Nasdaq -2.6%, Russell 2000 -1.9%.

Asian equities weaker Thursday following steep declines on Wall Street. US futures extending declines and European futures sharply lower this morning.

FI: The weak risk sentiment sent EGB rates lower in core and semi-core space, while peripheral yields rose. Bunds declined 1.2bp while bund spreads widened 1bp to 35bp. Further media reports where potential ECB cuts are mentioned has opened a risk in short end rates, leaving a 10bp rate cut to be a coin toss at the September meeting. EGB curves bull steepened.

FX: Digesting the broad dollar strength, stemming from strong global risk aversion as of yesterday will remain in focus today. Key topics are tech earnings from overnight (Facebook, Tesla and Apple), looking for a breakthrough in terms of European vaccine deliveries and positive news flow on US fiscal easing. Meanwhile, the pressure on NOK has intensified with the Norwegian currency leading losses in yesterday’s session amid risk selling off.

Credit: Clear risk off session in credit and particularly for the lower-rated segments. iTraxx Xover widened to 270bp (+10bp) and Main to 52bp (+2bp). Though the cash bond BB-segment of HY only widened around 6bp, the B-segment widened around 16bp. The widening was less fierce in IG where the average widening was around 1bp.

Nordic macro and markets

A lot of data in Sweden today, NIER’s January confidence survey is expected to show some moderation in manufacturing and business services recovery, but it should still look fine. At the same time, consumer-related services and durable retail trade is expected to continue to feel the pinch from 2nd COVID wave restrictions. That said, it is to be noted that consumer confidence is on an upward trend, albeit still below normal. Retail sales showed a strong increase in the three month period up to November and we cannot preclude a temporary correction. The Labour market has shown to be surprisingly resilient during the pandemic. We expect this to be hold also during the 2nd wave of restrictions but as November unemployment rate was surprisingly low, there is a risk that we will see a slightly higher December number but the overall labour market picture remains.

Retail sales in Norway surprised to the upside in 2020, and the 5% m/m increase in November was a particular surprise. Shopping centres are reporting sales growth of around 10% y/y in December, and while this is very healthy, it points to a drop of almost 5% from the extremely high sales in November. After taking account of online shopping contributing to this outperformance, we therefore expect retail sales to shrink by 4% m/m in December, well below consensus.


Danske Bank
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