Market movers today
- Consumption-related indicators remain in focus this week after last week’s evidence of robust global goods demand. We get the euro area consumer confidence data for November today, and it will be interesting to see whether we will see a decline similar to the decline in the US in light of high inflation pressures. So far consumer confidence has been quite resilient, still standing above pre-pandemic levels. Also, the US PCE release will be out on Wednesday and German consumer confidence on Thursday.
- On the central bank front this week, pay attention to the FOMC minutes on Wednesday and the ECB minutes on Thursday.
- Also worth keeping an eye on German politics this week, with the ‘traffic-light’ negotiations on the final streak and parties aiming to present a coalition agreement by end-November and elect the chancellor in the first December week. Climate policies and financing remain the biggest hurdles between the parties according to media reports.
The 60 second overview
COVID-19: The focus remains on rising news cases in the Northern Hemisphere. In Europe, many countries are imposing (partial lockdowns), see our Covid-19 Update: Parts of Europe are closing down – more to follow, 19 November. Starting today, Austria is closing down for at least 10 days. It is also the first EU country planning to make the vaccination a legal requirement from February 1. Germany’s Health Minister has not ruled out new lockdowns. FT reports how protests and riots against government-imposed restrictions are spreading across Europe and have in many places erupted in violence.
Geopolitics: Apart from the clashes between the West and Russia on natural gas supplies and the manufactured immigrant crisis on the Poland-Belarus border, tensions are also on the rise in Ukraine. Over the weekend, the US intelligence shared information with key European allies showing a build-up of Russian troops and weapons to prepare for a rapid and large-scale push into Ukraine. According to Ukraine’s military intelligence (Reuters), more than 92,000 troops are amassed around Ukrainian borders, preparing for an attack by the end of January or beginning of February. According to media reports, any new attack on Ukraine would be on a scale far larger than in 2014 when Russia annexed Crimea.
China: In its quarterly monetary policy report published on Friday, the PBOC removed from its policy outlook a reference to stick with “normal monetary policy”, a move seen as allowing the central bank to shift its stance towards more supportive monetary policy. CNY is the best-performing EM currency this year and we look for continued strength in the near-term as we have written in our CNY Strategy – Why is the CNY so strong?, 18 November. However, we expect CNY to weaken next year, driven by increasing monetary policy divergence between the Fed and the PBOC.
Equities: Equities mostly lower on Friday as Covid-19 flare up forced several countries in Europe to take on new measures to curb the outbreak. Austria initiating new lockdown and aiming to be the first country in the Western world to run compulsory vaccination.
As yields dropped, value underperformed to growth with energy as the biggest loser. Reopening and reflation trade suffering as a massive rotation took place. The mixed performance also visible in US indices with Dow -0.8%, S&P 500 -0.1%, Nasdaq +0.40% and Russell 2000 -0.9%. Asian markets this morning are very mixed with South Korea outperforming while Hang Seng once again underperforming. European and US futures are flat to slightly higher this morning.
FI: It was a volatile week in the global bond market last week as shown by the moves in the US Treasury market and European market. The 10Y US Treasury yields ended last week more or less unchanged from the start of the week. On Monday, the 10Y Treasury bond traded with a yield of 1.55%, and rose to 1.65% before declining to 1.55% on Friday as the market are facing higher inflation relative to rising infections and more lockdowns especially in Europe. Hence, 10Y German government bond yields are back to -35bp.
FX: EUR/USD dropped below 1.13 on Friday, as a new wave of EU COVID restrictions and hawkish Fed talk weighed on the cross. EUR/GBP is still trading below 0.84 at the time of writing. EUR/CHF dropped below 1.05 on Friday and the question is whether the SNB will start intervening in order to avoid a too strong CHF.
Credit: Credit generally had a tough day on Friday with iTraxx Xover widening 3.3bp and Main 0.4bp. HY bonds widened 2bp while IG tightened 0.5bp.