Sat, Oct 23, 2021 @ 01:58 GMT
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Fed’s Bullard Still Wants To Taper

Market movers today

  • After the weak US labour market report on Friday, markets will keep a close eye on any tapering hints from NY Fed President John Williams when he speaks later this evening. JOLTS Job Openings data for July will give insights into whether US labour demand is still high.
  • Bank of Canada and Poland’s central bank will hold their monetary policy meetings, with no changes expected.
  • Several July indicators are released in Sweden today, including the production value index and the consumption indicator.

The 60 second overview

Fed – to taper or not: With the ensuring uncertainty as to how to interpret last Friday’s weak jobs amid high and rising but volatile wage growth data, the case for tapering asset purchases this year has become more muddled. Well-known hawk James Bullard is among the first Fed officials to state an opinion publicly after these data. In FT, Bullard re-iterates his previous calls for the Fed to begin tapering, ending purchases by Q1 and signalling confidence in the US recovery. A host of Fed speakers are scheduled for public appearances this week and these are likely to guide the market ahead of the blackout period, starting Saturday and the FOMC meeting later this month.

Germany: The expectation components of the ZEW survey continued their downtrend for a fourth consecutive month in September. Judging from the ZEW, we should expect a further moderate fall in September PMIs in Germany and the euro area.

German election: The German election is getting closer and the support for Merkel’s conservative coalition is declining and fell below 20% with less than three weeks to the election. This is the lowest poll since 1949 for the CDU/CSU. The social democrats (SPD) continue to gain and are at 25%. The reaction in the market to the polls has so far been limited as SPD is not seen to begin a big spending programme as the head of SPD Scholz was finance minister in the Grand coalition under Merkel.

Sweden loosens restrictions: Yesterday the Swedish government announced that it lifts Covid19 restrictions on public and private gatherings/events and restaurants from September 29. In addition, advice on home work is lifted. This means Sweden is returning closer to a normal state of things soon.

Poland: Yesterday, EU announced that it would seek to impose daily fines against Poland over Justice Concerns (EU fearing that the Law and Order party is curtailing judiciary independence following creation of a disciplinary chamber of justice). PLN barely moved on the news (actually it is stronger against the euro), as the market is expecting that Poland and EU will find some kind of solution eventually. We tend to agree with that view. However, the reaction on the Polish side (junior ministers) were pretty tough against the EU, so we can’t completely rule out further negative headlines, generating some market attention.

Equities: Developed markets were mostly lower yesterday, as growth took the lead in an uneventful session. Performance between cyclicals and defensives was thin, with both industrials and health care among the big decliners, and communication services and consumer discretionary among the better sectors. VIX ticked up slightly. US all lower with S&P 500 -0.3%, Dow -0.8%, Nasdaq 0.1% and Russell 2000 -0.7%. Asian markets mostly muted. Japan the exception as it continues its rebound. US futures in small moves.

FI: Global bond yields rose despite the decline in US and EUR equity market as the market are looking for a more hawkish ECB at the upcoming meeting on Thursday. There were no surprises in the ECB QE data released yesterday. In the PSPP, ECB continue to focus on Supras. Germany and France were marginally ‘overbought’ while Spain and Italy are ‘underbought’. In the PEPP, they bought in net terms EUR 16bn. This was very close to our expected level.

FX: USD and NOK rose vis-à-vis CAD, AUD and NZD yesterday. EUR/NOK continues to hover around the 10.28 level, EUR/SEK traded in the 10.15-10.17 range and EUR/USD fell to 1.1850.

Credit: The positive sentiment in credit came to a halt yesterday where iTraxx Xover widened 3bp (to 229bp) and Main 0.4bp (to 45bp). Cash bonds were also under pressure with HY bonds widening 2bp and IG ½bp.

Nordic macro

July indicators for production, consumption and GDP is out this morning. We expect a mixed picture. That said, PMI’s, retail sales and car registrations have shown some weakness implying a possible downside.

Riksbank buys in total SEK 2.5 bn T-bills (3 and 6 m).

Danske Bank
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