Market movers today
- Today, consumer confidence data will be released for the euro area and Sweden. While euro area consumers have remained fairly optimistic over the past months, consensus is looking for a decline amid the rising Omicron-worries.
- In Sweden consumer confidence is released with the NIER survey, which also comprises industrial confidence. We look for a setback in both (see below).
- Otherwise focus continues to be on Omicron, the Turkish Lira, the Russia-Ukraine crisis and prospects for US President Biden’s Build Back Better plan.
The 60 second overview
Risk sentiment: Stocks, bond yields and oil prices are higher overnight as risk appetite has recovered somewhat from the hit seen in the past two days.
Turkey: As the currency-crisis continued in Turkey, USD/TRY dropped from nearly 18.50 to 12.5 during yesterday (stronger TRY), settling at some 13.40 and hence spot dropped some 30% in a matter of hours. The drop is reportedly due to Erdogan effectively offering to floor TRY-deposits at zero percent returns against some other currency. Details, if any, appear very sparse in international media and we are quite doubtful this is the end to the current Lira story. We speculate the extreme (even for TRY) move in Lira should be viewed on the back of two channels 1) this is the first time that official policy makers (Erdogan) is indicating that some sort of political pain-threshold has been reached and 2) that stop-losses were hit on the way, substantially amplifying volatility. The key to determining when TRY is done dropping some 5% daily is to determine where/when the political winds change.
Covid: In the US, Omicron has become the dominant variant with 73% of new cases up from 3% last week. In New York the share is 92% and cases are at new highs during the pandemic. In South Africa new cases have started to move lower, but hospitalisation and deaths rise. UK Prime Minister Boris Johnson has kicked the can a bit further down the road before deciding if new restrictions are needed over the Christmas holidays. It follows a week where new cases have leaped higher to 90k, which is 50% higher than the previous peak in January.
China stimulus: This morning we published a short paper with an overview of China’s stimulus measures, see Research China – Stimulus picks up ahead of CPC Congress in ’22. Stability is the name of the game in 2022 for China and a range of stimulus measures will aim at achieving just that. It will underpin a moderate recovery in 2022 following the sharp downturn during this year. On January 26 we will host a webinar on the 2022 economic and political outlook for China in cooperation with Danish-Chinese Business Forum.
Equities: Equities fell yesterday as Omicron cases are rising sharply and the Build Back Better plan in the US is facing headwinds. Worth mentioning that markets ended far off day lows and futures have regained most of the losses today. The sell-off was relatively broad based, though defensive, large cap, value, min vol stocks continue to outperform. VIX in another move higher finished north of 22. In US Dow -1.2%, S&P 500 -1.1%, Nasdaq -1.2% and Russell 2000 -1.6%. Asian equities rebounding this morning along with European and US futures.
FI: Yesterday, the global yield curves bear-steepened with long end yields rising in Europe and US on the back of the uncertainty regarding the negative impact from Omicron as well as whether the fiscal stimulus package from President Biden can be voted through congress.
FX: EUR/USD is in the hands of terms-of-trade. TRY rose roughly 30% as Erdogan showed some very tentative but first signs of concern.
Credit: Along with other risk assets, most corners of credit markets took some beating yesterday. iTraxx Xover widened 6bp and Main 0.8bp. While HY bonds widened almost 3bp, IG bonds closed the day 1bp tighter.
The latest Covid-19 developments and the sharp rise in electricity prices are hurting the economy at many levels. In the NIER survey (09:00) we would expect to see a negative impact on both business and consumer sentiment. We might also see a price plans (businesses) and inflation expectations (households) pick up.