Market movers today
- We are looking forward to reading the Riksbank minutes today.
- Germany releases factory orders for November. They are quite volatile but have generally lost momentum since summer.
- The Euro Sentix indicator is also due. It increased last month but concerns over Covid restrictions in the euro area may push it lower again.
- Early Tuesday China releases trade balance data.
- Rest of the week focus will be on the development in the Omicron variant as well as US inflation data for November. German ZEW, Polish central bank meeting and Norwegian inflation is also due.
The 60 second overview
Omicron: Anthony Fauci, Chief Medical Adviser to President Joe Biden, says that early data are “encouraging” while acknowledging that more data is needed before making firm conclusions, Fauci is not concerned about protection from being vaccinated.
Weak jobs report: The US jobs report for November released on Friday was to the weak side with headline growh lower than anticipated. The unemployment rate fell significantly, as the household survey showed much stronger employment growth (but that number is much more volatile, which is why non-farm is a better measure). Overall, we are having a hard time seeing much stronger employment growth, if the labour force does not increase at a faster pace, and the labour market is, in our view, still very tight on many measures with very high labour demand. From a Fed perspective we still believe the Fed is on track increasing the tapering pace despite the weak jobs report.
Equities: Equity markets finished last week on a lower note with the risk-off tone visible across sectors, styles, markets and asset classes. While value outperformed growth, risk-off was very visible in the sector rotation where defensives outperformed cyclicals by a huge margin. Despite most indices lower, deep defensives such as consumer staples and utilities ending Friday higher backed by a big drop in the long end of the US yield curve. VIX ended the week north of 30 and one of our preferred styles, minimum volatile outperforming the broader market by a huge margin. Long duration growth stocks such as the FANMAG complex struggling. Despite the struggle for heavyweight FANMAG stocks, large cap still managed to beat small cap and hence adding to outperformance we seen for a while now. In US Dow -0.2%, S&P 500 -0.9%, Nasdaq -1.9% and Russell 2000 -2.1%. Asian markets are mostly lower this morning and once again the Hang Seng index is leading the way lower. Hang Seng is down almost 15% YTD. More positive tones in the US and especially in Europe where futures are roughly 1% higher this Monday morning.
FI: We have seen a solid rally in US Treasury market despite the hawkish comments from the Federal Reserve that the inflation may not be transitory. There has been a solid spill-over effect to European government bond yields despite the significant rise in EU inflation.
FX: The slightly disappointing US jobs report on Friday failed to move EUR/USD much. The pair trades just above the 1.13 level. USD/JPY continues to trend lower and is making an attempt to re-establish itself below the 113 level.
Credit: Performance was mixed on Friday where CDS followed equities in red while cash bonds did well. iTraxx Xover widened 2.4bp and Main 0.6bp. HY bonds tightened 4bp and IG 1.5bp.
Today the Riksbank (RB) Minutes from the November meeting will be scrutinized for: 1) inflation – the overall impression from the MPR was that the RB continues to be team “transitory” but have any of the board members shifted their arguments? 2) The board members view on the repo path (which was lifted and now indicates a first rate hike by the end of 2024); 3) the members’ consideration when it comes to the shift in the distribution of bond purchases. The shift from buying overwhelmingly covereds to a strict 1/3 (= SEK 12bn) each of govies, coverds and munis in Q1 2022 came as a surprise.