Market movers today
- There are no big market movers today.
- Key data this week will be German ZEW (Tuesday), US retail sales (Wednesday) and Flash PMI for US and the euro area (Friday). FOMC minutes (Wednesday) will be scrutinized for any discussion on tapering of bond purchases. News on COVID and vaccines also continues to be in focus.
- In Scandi attention turns to Swedish inflation and oil investment survey in Norway.
The 60 second overview
Risk-on sentiment: Financial markets had a strong start to the week in Asia with gains in equities and a further rise in oil and metal prices. EUR/USD has risen further from Friday’s level. NOK and SEK is stronger as well. USD/CNH has fallen to a new cycle low of 6.40.
Equities: Friday saw another buoyant session for equities, as investors continue to load up on risk. Both US and European equities closed mostly higher, and by doing so, sealed another up-week for both regions, see also Weekly Focus: Strong earnings season despite COVID headwinds, . Energy, Materials and Financials were the top performers while defensive sectors, communication services and consumer discretionary were behind. On a micro level, performance was also characterized by recent bottlenecks, with semiconductors outperforming. In opposite, Autos were among the losers as the most affected sector by these shortages.
Italian politics: On Friday night, former ECB president Mario Draghi emerged as Italy’s new prime minister to lead as a technocrat PM after Renzi stepped down on the back of a dispute on the NextGenEU funds planning. Draghi has chosen a number of key technocrats in the more budget sensitive positions such as the finance minister (Banca d’Italias deputy governor Franco), energy and environment as well for the digital transformation. On the EU political scene, Draghi will certainly form a strong pro-EU approach, while also a pragmatic approach to strike the deals. Italy has to have elections by 2023, while some media outlets has floated Draghi to replace President Mattarella already next year, hence Draghi’s tenure is for a limited time. The positive sentiment in notably Italian bond markets is set to continue.
COVID and vaccine news: UK crossed 15 million people who have received vaccination, close to 25% of the population. If UK continues at the current pace the whole population will have received the first vaccination by the end of May, see chart for vaccine development. Israel reported a 94% drop in symptomatic COVID-19 cases among people who were vaccinated, see Reuters. British scientists are working on a universal vaccine that would combat all variants by targeting the core of the virus and not the spike protein. It could be available within a year, see VOA. New COVID cases continue to fall rapidly in the US and across Europe. The number of new cases globally is the lowest since October. New York extended closing times for bars, restaurants and gyms to 11pm as cases are coming down.
FI: There was a decent rise in yields in the long end of the US Treasury curve on Friday and there was a spill-over effect to the German yield curve, where 10Y Bunds rose 3bp and are now trading close to levels seen back in August/September 2020. Given the amount of liquidity in the system and the ECB QE program, the upward move in rates should be capped.
FX: Last week was fairly uneventful in FX majors space with most cross moving sideways. On Friday we published new FX forecasts. The EUR/USD market narrative has changed towards our own view over the past month. We continue to see EUR/USD around 1.22 in 1-3M, before a move towards 1.16 in 12M. Scandi tailwinds near-term, but we see headwinds in H2.
Credit: Most parts of credit took a slight step wider on Friday, with Xover widening to 242bp (+2bp) and Main to 47bp (+½bp). While HY cash bonds tightened around 1½bp, IG was ½bp wider.
Nordic macro and markets
No key movers today. Look out for Swedish CPI and oil investment survey in Norway, see Weekly Focus, 12 February for further comments.