Market movers today
- We see upside risk to today’s Euro area CPI for January as we expect headline inflation to be around 1.0% vs consensus of 0.6%, as earlier releases of CPI in Spain and France surprised to the upside. These upticks in European inflation are unlikely to change much in the ECB’s view for monetary policy and should be viewed as part of the recovery.
- US ISM services is expected to decline as lockdowns still weigh on the economy (and the level is quite high). ADP employment for the US is also released though the main event will be the non-farm payrolls on Friday. We have generally seen a stall in new job creations and it is probably too early to see a stronger trend while many restrictions are still present.
- Former ECB president Mario Draghi is due to meet Italian president midday about possibly becoming the next prime minister of Italy after two attempts by Giuseppe Conte to form a government have failed.
The 60 second overview
The dollar: EUR/USD dropped closer to the 1.2000 level (USD/DKK about 6.20), yesterday and the dollar has generally made a comeback this year. The driver(s) appear to be a shift in the market’s narrative as the European outlook has remained a tad to the weak side whereas the narrative for US’s post-COVID recovery has gained strength. The stronger dollar is mostly vis-à-vis the EUR but this is unusual as the economic and financial recovery last year was highly associated with a weakening dollar. In our main scenario, we forecast EUR/USD at 1.16 on 12M (USD/DKK at 6.42) as this may continue.
The positive vaccine news continues to tick in. Interim phase 3 study results (peer reviewed) from the Russian Sputnik V were released yesterday showing an efficacy of nearly 92% and no severe cases in the vaccine group. The question is now whether the company will request approval in some of the Western countries. Another study by Clemens and Voysey (2020) shows that the efficacy of the AstraZeneca vaccine is higher when more time is allowed before giving the second booster injection supporting the UK’s “first dose first” strategy. More specifically the study shows that the efficacy of the single dose regimen was 76% from day 22 to day 90 and that protection did not wane during the initial 3-month period. Efficacy was nearly 92% when waiting +12 weeks versus nearly 55% when waiting less than six weeks. In the EU, the second shot is expected to be received within 4-12 weeks after the first one and it would be very helpful for the EU’s vaccination process if authorities decide to wait all 12 weeks before the second shot, especially now that the EU will receive fewer doses in Q1. In general, vaccine news continues to be good, supporting the base case of a strong economic rebound later in the year.
Post-COVID life: In New Zealand, life is pretty much back to normal except for some very strict travel restrictions. We have looked at what post-COVID consumption has looked like there. The good news for businesses currently struggling with the pandemic is that consumers quickly revert to normal patterns of consumption after reopening. The bad news is that many do no more than that. See more in Macro Research: Post-COVID consumption – experiences from New Zealand, 3 February.
Equities: Markets extended the gains from Monday, with most indices markedly higher. US and European performance on par, with S&P 500 up 1.4%, Dow Jones 1.6% and Russell 1.2%. Nasdaq outperformed for a second day, up 1.6% and by doing so, erasing the dip from last week. Value names rebounded but in a peculiar sector mix, as both Financials, Industrials and Consumer Discretionary (driven by Tesla) were up more than 2%. On the other side, defensives such as Heath Care, Real, estate and Consumer Staples all trailed. Robin Hood-investors had a tough day, as Gamestop retreated -60% and AMC -40%. Asian markets see only modest moves this morning, with Japan rebounding. Similarly, US futures indicate a fairly positive opening later today.
FI: Global bond yields continue to rise modestly as “traditional” equity indices rise and the VIX volatility index declines. US 10Y Treasuries rise 2bp, while Bunds increase by 3bp. In Italy, former ECB president Draghi is seen to be the front-runner as a new Italian prime minister. If Draghi is to be appointed to try to form a new government it will be boost to Italian government bonds relative to peers and Germany.
FX: SEK rebounded yesterday and EUR/SEK now trades in the 10.00-10.15 range again. NOK followed suit with support from a higher oil price. EUR/USD dropped closer to the 1.2000 level.
Credit: Yet another day of good performance in credit markets where iTraxx Xover tightened to 257bp (-10bp) and Main to 50bp (-1½bp). Cash bonds also saw good performance, with HY tightening 5bp and IG around ½bp tighter.
Nordic macro and markets
Swedish services PMI has lost momentum over the past couple of months and rather showing a moderate momentum. On the back of the tighter restrictions imposed by the end of December, it is possible that the number will be lower today but should stay in the growth territory (above 50). There is no question that some sectors are hit extremely hard by these tighter restrictions but in terms of GDP, these sectors ‘only’ account for about 5-8% of total GDP, which limits the economic impact.
Norwegian housing prices for January will probably reveal another healthy month in the housing market. A tight market, illustrated with a very low inventory-to-sales ratio keeps prices rising. The OBOS-figures point to monthly growth around 0.5-1.5 % m/m, i.e. mainly on the upside of Norges Bank’s 0.5 % estimate from the December MPR. If the result ends in the higher end of the interval be prepared for some pressure on Norges Bank to hike rates this year.
