Market movers today
- Today’s main release is the German IFO survey. Besides that we get US new home sales, which will give us some insight into the current situation in the US housing market.
- This week’s main event is the FOMC meeting on Wednesday. We do not expect the Fed to make significant changes, as the Fed still thinks that high inflation is transitory and the labour market has still not fully recovered. Also it is one of the interim meetings without updated projections.
The 60 second overview
US mask restrictions: Joe Biden’s chief medical advisor, Anthony Fauci, said on Sunday that tightening mask restrictions were on the table as a way of curbing the latest increase in new (delta variant) covid-19 cases. New cases are especially on the rise in states with a low vaccine take-up. States with low rates of inoculation counts Arkansas, Mississippi and Alabama where less than 37% are fully vaccinated.
Closer to an infrastructure package: US president Joe Biden’s USD 1tn bi-partisan infrastructure package is closer to seeing the light of day as a draft bill. Both republican and democratic senators said during the weekend that they expected a bill to be ready already today. If a bi-partisan deal is not able to be finalized the Biden administration is believed to include it as part of a larger legislative package later in the year including gross spending of up to USD 4tn. This package is set to go through without the support of republicans.
Debt limit: In relation to the above, republicans are hesitant to vote in favour of an increase to the statutory debt limit of USD 28.5tn. US secretary Janet Yellen said on Friday that if congress does not act to extend the debt limit within the coming week the treasury would need to take extraordinary measures. The treasury’s cash balance stood at USD 616bn on Wednesday of last week, which is still a high level in a historical context, but could be exhausted at some point during October if no action is taken. Failure to increase the debt limit could lead to a federal government shut-down as has happened three times during the past decade.
Equities: After a weak start to last week, equity markets have rebounded strongly during the past three trading sessions with the S&P 500 rising 4% (1% on Friday) following still strong corporate earnings – 87% of companies having reported results for Q2 so far have beaten analysts’ estimates. This morning Asian markets are mixed with Nikkei up 1% (Japan was closed Thursday and Friday last week) but both Hang Seng and Shanghai Shenzhen is down almost 3%. Futures indicates a sour opening as well in both US and European markets.
FI: USD rates and curves closed the Friday session almost unchanged. US 10 year yields closed at 1.27% and 2y around 0.20%, the latter still indicating a slightly more than 50% probability of a 25bp hike within the coming 12m.
FX: Friday proved a fairly quiet end to an otherwise eventful week for FX markets. EUR/USD still hovers below 1.18, EUR/GBP has stabilised around 0.8550 while both EUR/NOK and EUR/SEK have edged modestly higher after Thursday’s drop. We remain strategically bullish USD and GBP and strategically bearish SEK and NOK.