Market movers today
- Today’s key release will be the US labour market report, which will be important with respect to whether the Fed starts tapering in November as planned. After the weak August report, focus will be on whether employment growth accelerated after higher benefits expired or whether more deeper running issues (i.e. supply problems or slowing demand?) are holding back jobs growth. In our view, new jobs around 300k or above will be enough for Fed to go ahead with tapering.
- In Norway, we expect mainland GDP figures to have climbed 0.8% m/m in August, driven by higher activity in business services.
- Chinese stock exchanges reopen after the Golden Week holidays, with focus still on property developers (see Research China – No ‘Lehman moment’ but financial stress is not over, 29 September).
The 60 second overview
US: Republicans joined Democrats in the Senate and voted to extend the debt ceiling by USD 480bn until 3 December, averting a possible default in mid-October. The bill now goes to the House, where it is expected to pass before Joe Biden signs it. Read more in Research US – Government shutdowns are usually short-lived and no one is interested in a default by the end of the day, 29 September. However, as the reprieve will only be short-lived, US treasury yields edged higher, while USD was little changed. Oil prices rose back above USD 82/bbl after the US Energy Department said it has no plans at this time to tap into the nation’s oil reserves to help quell rising gasoline prices.
Equities: Risk appetite returned to markets yesterday. Risk on was evident, with equities bouncing, most sectors higher and cyclicals beating defensives. Europe outperformed the US after lagging in the prior session. Still, S&P500 up 0.8%, led by consumer discretionary and materials, Nasdaq 1.1%, Dow 1% and Russell even 1.6%. Positive sentiment continuing in Asia this morning, with
Chinese markets reopening 0.5% higher after the long holiday. Likewise, US futures point slightly higher.
FI: The positive risk sentiment tightened the intra-euro area spreads as core rates were broadly unchanged on the day. The peripheral spreads performed led by Italy and Greece, while Spain was also subject to significant supply yesterday. The Bloomberg sources story from Wednesday evening on future ECB bond buying (even if it lacked substance) supported peripheral spreads from the morning. ECB minutes did not impact markets, as it mostly contained a repetition of the ‘transitory inflation regime’ that was previously conveyed – those views were also shared by Schnabel and Lane in their speeches yesterday. Bank of Greece Governor Stournaras said that the current market pricing did not reflect the ECB’s forward guidance, yet markets did not react to his comments.
FX: In Poland, the central bank governor yesterday held a press conference after the surprise rate hike on Wednesday. If the market had expected a hawkish governor, it was left disappointed. EUR/USD will likely weaken as payrolls confirm Fed can go ahead with tapering. EUR/NOK price action has been peculiarly similar in recent sessions.
Credit: Credit markets staged a strong comeback yesterday where iTraxx Xover tightened 7bp (to 259bp) and Main 1bp (to 51bp). HY bonds tightened 10bp and IG 1bp.
Nordic macro
In Norway, mainland GDP growth slowed somewhat in June and July after the strong rebound in May. August will probably have been affected to some extent by rising infections, which may well have held back growth even in the absence of new government restrictions. On the other hand, the results of Norges Bank’s regional network survey show that uncertainty in the business sector is now much lower. We therefore expect mainland GDP to climb 0.8% m/m in August, driven by higher activity in business services.
