Market movers today
- Today we get German IFO figures. It will be interesting to see whether business sentiment continues to decline amid lack of supplies.
- Later this week, we have central bank meetings in the ECB and BoJ, none of which should be particularly action-packed, though.
- Markets will be looking out for flash prints for October inflation in the US and the euro area as well.
- We will also keep an eye on energy markets this week, as high gas, oil and electricity prices continue to erode consumer purchasing power.
The 60 second overview
10Y US Treasury yields rallied on Friday on the back of the comments from Federal Reserve chairman Powell regarding the inflation outlook as well as tapering. Powell stated that supply shortages “are likely to last longer than previously expected,” On the QE programme he stated that “I do think it is time to taper.” However, it was “still the most likely case” that CPI would move back towards the 2% target as constraints ease and jobs gains increase.
The main event this week is the ECB meeting, where there will be plenty of speculation regarding the end of the PSPP and some form of increasing the PSPP purchase. We expect ECB to flag risks to the outlook and as such not deviate from the current baseline and send new policy signals already now but wait for a new projections round in December.
The Turkish Lira remains under pressure and has hit an all-time low versus the dollar on the back of the diplomatic crisis between Turkey and 10 nations such as US, Germany and France.
Most of the Asian equity markets have declined this morning due to the combination of the inflation outlook, Covid-19 virus outbreak in China as well as the earnings expectations for major tech firms such as Twitter and Google reporting results this week.
Equities: The week ended on a mixed note, as Europe outperformed US. Overall though, risk on has been the story of the week, with most markets near new highs. Tech weakness dominated the US on Friday, with communications services the big decliner as Facebook, Google and Twitter dropped on the weak Snap earnings. S&P closed down -0.1% but higher for a third consecutive week, Dow 0.2%, Nasdaq -0.8% and Russell 2000 -0.2%. Asian markets are following lower this morning. US futures point to an unchanged opening later this afternoon.
FI: Given the significant decline in the 10Y US Treasury yield on Friday, where 10Y Treasuries fell by 6bp on the back of the comments from Fed Chairman Powell we expect a positive opening in the European fixed income markets with lower yields. On top of this Italy was placed on positive outlook by S&P on Friday, and this should be positive for the BTPS-Bund spread, although the spread is very tight and has been remarkably stable.
FX: Friday was a rather uneventful day in FX space. EUR/USD moved sideways, still trading slightly above 1.16. EUR/NOK is still trading around 9.72 while EUR/SEK is trading marginally below the 10.00 mark.
Credit: Though European equities closed solidly in green, CDS indices sold off, with iTraxx Xover widening to 260.5bp (+4bp) and Main 50.4bp (+0.3bp). Cash bonds performed better, with HY closing 0.5bp tighter and IG 1bp tighter.