Market movers today
- With two days to go until Christmas Eve, the markets are settling into quiet holiday trading. Today is a light day in terms of economic data releases with only November retail sales released from Sweden.
- The Czech National Bank will have a monetary policy meeting today, and it is widely expected to continue hiking rates by 75bp to 3.50%.
- Otherwise, we continue to keep an eye on any news relating to Omicron and potential new restrictions, the Russia-Ukraine tensions and energy prices, Erdogan-induced volatility in the Turkish lira and the Biden-Manchin struggle.
The 60 second overview
Optimism on Biden-Manchin deal: Biden’s optimistic comments yesterday saying he and Manchin would eventually find common ground with regards to the Build Back Better investment plan provided a boost for risk sentiment yesterday. With two days to go until Christmas Eve, thin holiday trading has kicked in and poor liquidity has the potential to exaggerate market moves.
Russia-Ukraine: The US assistant secretary of state, Karen Donfried, said yesterday that the US would start talks with Russia over the situation in Ukraine next month. After having deployed about 100,000 troops on the Ukraine border, Russia has warned the West of ‘appropriate military-technical’ measures if they do not agree to Kremlin’s demands it laid out last week, including a demand that NATO and the US should restore the lines of their military presence in Europe to where they were before 1997, basically cutting presence in former-Soviet NATO member states. It is hard to see how the upcoming dialogue would bring any significant relief to the tensions since Russian demands are widely unacceptable by the West, and at the same time, publication of these demands have made it impossible for Russia to back down. The US and the EU have reportedly been consulting on ‘specific packages of sanctions’ but any sanctions would also entail dire consequences for Western companies while their desired negative impact on Russia would be mitigated by the fact that Russia has been preparing itself for further financial and economic isolation for years.
Equities: Equities zig-zag continuing with risk-on being the name of the game yesterday. Cyclicals, growth and small cap in strong outperformance, regaining some of the lost territory. Drivers being exactly the same that took equities down Monday and hence investors are still struggling to find out whether Omicron is going to be a big threat to economic growth or whether it will be the beginning of the end of Covid. In the US, Dow +1.6%, S&P 500 +1.8%, Nasdaq +2.4% and Russell 2000 +2.9%. Asian markets are calming down this morning, though with mostly green numbers. The same goes for European and US futures, with Europe slightly better than US futures.
FI: Positive risk sentiment in markets yesterday sent yields higher. The 10y point rose 6-7bp across most European countries, with a minor underperformance in the periphery. The general bear steepening move from the long end was driven by a combination of surging energy prices with natural gas touching new highs (+20% on the day), Italian PPI suggesting that the high inflation prints will linger into 2022, but also that markets will be faced with low growth. De Guindos, Muller and Kazimir also voiced concerns about more persistent inflation. ECB QE has now paused until 3 January.
FX: G10 funding currencies underperformed as risk appetite returned.
Credit: Sentiment improved drastically in credit markets yesterday where iTraxx Xover tightened almost 5bp (to 255bp) and Main 1.2bp (to 50.3bp). HY bonds tightened 3bp while IG was unchanged.
Nordic macro
Sweden: November retail sales and PPI on the agenda this morning. It remains to be seen to what extent the former has been affected by Omicron fears (if any). The latter is likely to take another hit from surging electricity prices despite printing a record high 16.8 % yoy last month. Yesterday the Government reintroduced a set of Covid restrictions to be in place from December 23 and roughly one month ahead.
