Wed, Jun 23, 2021 @ 11:28 GMT
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Restrictions On Dividends Set To End For Large US Banks

Market movers today

The German Ifo for March is published today. Ifo Business Climate, Expectations and Current Conditions are all expected to improve.

US February PCE core inflation, which is the Fed’s preferred inflationary measure, is published today and expected to run at 1.5% y/y. We are also due for the Michigan Consumer Sentiment reading for March. Michigan inflation expectations 12 months ahead are expected to be 3.2 % and the 5 year ahead inflation expectations are expected to continue to run unchanged at 2.7 %.

Note that we today at 13.00 CET will host a webinar, where we discuss the outlook for FX, Equity, credit and bond markets in light of the spike in US yields.

The 60 second overview

Bank dividends are back: The Fed announced yesterday that restrictions regarding US banks’ share repurchase programmes and dividend pay-outs put in place following the outbreak of the pandemic will be lifted on 30 June for those banks that comply with minimum capital requirements during the upcoming stress test. In combination with the recent expiry of SLR relief this could on the margin remove further balance sheet capacity from US banks.

Vaccine export restrictions: EU’s heads of state were yesterday gathered at an online conference to discuss a proposal put forward by the EU Commission to implement vaccine export restrictions targeted third countries that did not want to return already shipped vaccines or supplies needed for production to the bloc. While the proposal got the nod, member states such as Sweden were sceptical and Dutch Prime Minister Mark Rutte said that if the restrictions are actually going to be used, the broader consequences of such an action should be thought through.

Infrastructure package: President Joe Biden said yesterday that his next major legislative initiative after the approval of his COVID-19 relief package is an infrastructure package, which he will reveal (at least some details of) in Pittsburgh next week. US media have reported that the infrastructure may cost as much as USD3,000bn partly financed by higher taxes on corporates and high-income earnings. The money is expected to be spent on not only physical infrastructure such as bridges and roads but also cyber infrastructure (broadband) and the green energy transition. Assuming that the Republicans will not be on board, the Biden-administration still needs all Democratic votes in the Senate to get an infrastructure package over the finishing line and the question is how divided the party is on taxes, in particular.

Equities: On an aggregate level global equities ended higher yesterday although several regions fell and among them Europe. US stocks were the main reason for the global lift and the US session was a reversal of what we saw the previous two sessions. Yesterday the S&P500 started in negative and ended close to day high with an intraday move of more than 1.7%. Value outperformed growth but more notably small cap rose sharply after a string of weak sessions. Within sectors Financials, Industrials, Materials were the leaders with FANMAG names mostly lower but most sectors higher. Energy was a relative laggard after a big gain yesterday. Dow +0.6%, S&P 500 +0.5%, Nasdaq +0.1% and Russell 2000 +2.3%. Asian markets in a broad base catch up this morning rising 1.5%. US and European futures all higher with European futures advancing the most.

FI: EGB curves bull flattened from the long end yesterday. The 10y German Bund declined 3bp to -0.38% amid spread widening by 2bp in the periphery. Semi-core spreads widened 1bp. ECB’s scale up of PEPP buying as well as quarter end flows into FI is likely the supporting factors as market news has been constructive. This week EGB rates basically looked through the very strong PMI figures. We expect the usual quarter end and Easter jitters to prevail in coming days, and in absence of key events until next week’s Euro area inflation and US labour market report.

FX: EUR/USD continues to drift lower and hit yet another 2021-low yesterday, just shy of 1.1760. Dollar strength appear broad based and as such, we see most USD/EM crosses as bottoming out, including a weakening Asia.

Credit: Only small moves in credit yesterday. iTraxx Xover widened 2bp to 271bp and Main closed ½bp wider in 54.5bp. HY bonds ended ½bp tighter and IG marginally wider.

Nordic macro and markets

In Norway, unemployment has stabilised since November despite new and extended coronavirus restrictions. However, the closure of all non-essential retail in Oslo and Viken and the national ban on serving alcohol will affect a large number of jobs. It is probably too early to see this wave of layoffs in the March figures published in the coming week, but we still expect unemployment to rise from 4.0% in February to 4.2%.

February retail sales is due today. February was strong (+3.4% m/m) after a very poor December. We expect some further improvement this month (+0.5% m/m).

 

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