Market movers today
- A quiet start to a quiet week ahead of Christmas and year-end approaching, where no key events are scheduled for today.
- Later this week, Euro Area December flash consumer confidence will be released on Tuesday, and although the index has remained at relatively high levels through the fall, a sharp fall in light of the latest Covid-19 developments could raise some warning bells for Q1 private consumption growth.
- On Thursday, we will keep an eye out for the US November private consumption data, as the elevated goods consumption has been a key driver of the inflation pressure seen this year. Durable goods orders will be released at the same time.
The 60 second overview
Omicron: The spreading across the European continent has initiated renewed restrictions and renewed lockdowns. This weekend, the Netherlands entered national lockdown closing all non-essential shows until 14 January. In our COVID-19 update from last week (see below), we focus on omicron and what we know so far on vaccine efficacy (both after 2 and 3 doses), transmissibility, reinfection and breakthrough risks, projections, treatments etc. We still have limited data and all estimates and conclusions are subject to changes, as more data and studies become available. Most studies are preprints and not peer-reviewed. COVID-19 UPDATE: Omicron primer – what we know so far, 17 December.
Energy crisis in Europe: The European daily electricity prices are set to reach record highs today as both colder-than-usual weather, less wind and also some halted nuclear reactors in France are pushing prices higher. The higher energy prices are set to be a significant contributor to the high inflation prints in the coming month, but may also drag on growth as it is a ‘tax’ on disposable income.
Biden package: In the US, Biden’s almost USD2trn tax-and-spending plan faced a surprising resistance when Senator Manchin said he wouldn’t support it. Given the already narrow support for the package focusing on healthcare, climate had and child welfare, this jeopardizes the prospect of getting the plan through.
Economic chaos in Turkey: The Turkish currency continues to plummet this morning after President Erdogan reaffirmed his commitment to lower rates over the weekend. We think the Lira will continue to be under pressure as long as the government continues this rhetoric. In a note this morning we discuss the implications of the polices for the Turkish economy and three scenarios going forward, see Research Turkey – ‘Catch me if you can’ – no end in sight for lira’s freefall.
Equities: Equities ended Friday on a lower note, logging a decline for the week with big rotations out of energy and long duration stocks taking place. Friday rotations not as clear as the previous days but still some flight to safety in defensives and VIX moving higher. Large cap and minimum volatility stocks making solid outperformance of small cap and momentum stocks in the current environment. In US Friday, Dow -1.5%, S&P 500 -1.0%, Nasdaq -0.1%) and Russell 2000 +1.0%. New challenges occurring over the weekend and Asian markets are painted in red this morning. European and US futures are indicating an negative opening of cash markets down 1-2%.
FI: On Friday, bond markets weakened on slightly hawkish comments from ECB governing council members in the morning, however, the underperformance was reversed on general weak market risk sentiment. BTPs was the main performer, almost reversing the lost grounds during Thursday’s ECB meeting. We are now heading into the final stretch of the year with the global central bank meeting behind us, with rising COVID-19 cases that may dent risk sentiment, but also raises the risk of erratic moves on light flow.
FX: Last week once again proved how the global investment environment is key to get right when trading NOK. In our newly published,we stick with the view that dollar is set to strengthen further in the coming quarters.
Credit: Credit markets followed equities in red on Friday with iTraxx Xover widening almost 4bp (to 253.7bp) and Main 0.6bp (to 50.7bp). Cash bond moves were more modest, with HY widening 1.5bp and IG tightening 0.5bp.