Mnuchin ends many of Fed's emergency credit facilities

Market movers today

Pfizer may apply for an Emergency Use Authorisation for its vaccine candidate today. The approval process is expected to take less than a month. European Commission President Ursula von der Leyen said that the European Medicines Agency may approve the vaccine from Pfizer and Moderna 'as early as the second half of December 2020'.

UK retail sales for October and Brexit headlines will be in focus, after talks were suspended yesterday due to a positive COVID-19 test among the EU's negotiating team.

Euro area. A setback in consumer confidence is likely in November in light of the latest coronavirus restrictions.

Denmark. Employment figures and consumer confidence are on the agenda.

The 60 second overview

Markets overnight. Asian stock markets are mixed with Nikkei down 0.5%. S&P500 futures are also down. EUR/USD is marginally higher this morning trading a bit below 1.19.

Brexit negotiations suspended because of COVID-19. Unfortunately, the Brexit talks have been suspended temporarily due to a positive COVID-19 test among the EU's negotiating team. Of course this is negative with so little time left but we expect negotiations to resume soon so it should not have an impact on whether there will be a deal eventually or not.

Treasury Mnuchin refuses to extend several of Fed's emergency facilities. In an unexpected move, Mnuchin decided to end several of the Fed's emergency facilities (and return unused funds) like the Main Street Lending Programme (MSLP), although the Paycheck Protection Program Liquidity Facility (PPPLF) survived. Mnuchin mostly extended the programmes targeting the financial system (e.g. Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF) and the Money Market Liquidity Facility (MMLF)). This is probably a sign that the Trump administration is acknowledging that it lost the election. We are a bit concerned about this move, as the size of MSLP has been increasing lately. MSLP - despite all its flaws - worked as a backstop such that small and medium-sized companies had access to credit if necessary. Especially now that the COVID-19 situation in the US is worsening and more and more states are tightening restrictions hurting especially small businesses and Congress has yet to approve further fiscal aid, it would have been better to extend the facility. The Federal Reserve has in an extraordinary move criticised the decision.

That said, it increases the pressure on the Democrats to accept a smaller relief package to support the economy near term and the Fed still has other options to provide the necessary liquidity to the financial system. Also, the banks are (at least right now) under much less pressure than they were in spring. With respect to the MSLP, it is noteworthy that the spread between LIBOR+300bp (the interest rate on MSLP loans) and 5Y BBB corporate bond yields has widened a lot in recent months.

WHO recommends against using remdesivir. Remdesivir is one of the only drugs approved for treating COVID-19 but the WHO recommends against using it, as it does not find support for the drug having an impact.

Trump running out of the options. President Trump has yet to concede but he is running out of options (and time). Georgia has completed a recount of its vote showing President-elect Biden won. Pennsylvania and Michigan are expected to certify early next week. Trump is still complaining but in our view it is mostly noise, which should be ignored, as Biden's victory was quite clear despite Trump doing better than expected. What is more worrisome is how Trump will use his presidential power in the next two months. Mnuchin's decision not to extend Fed's credit facilities is a reminder of that.

Equities. Thursday saw the roles reversed as European markets closed mostly lower, while the US managed to end the day higher, after a late uptick. Coronavirus infections and political worries continue to burden markets, overshadowing the good news on vaccines. Thursday's rise in US shares was relatively muted, with Tech regaining a little ground versus other sectors and Energy in the top, while Defensives lost ground. Asian markets are mixed this morning, while futures indicate a slight negative opening in the US (with the exception of Nasdaq, in green). 

FI. IMF warned yesterday that another round of lockdowns will hamper the economic recovery. Hence, the need for economic stimulus is still needed. The infections continue to rise together with more restrictions in the US. Hence, 10Y US Treasury yields declined modestly despite rising US equity prices. A similar picture was seen in Europe, where there was modest decline in government bonds yields. The spread between core-EU and the periphery was more or less unchanged and the curves continue to flatten albeit at a modest pace.

FX. It was a quiet day in FX space yesterday with limited movements in both majors and Scandies. EUR/GBP moved up on headlines stating that negotiations have been suspended because one of the EU negotiators has caught COVID-19. The cross moved lower again later, as a Telegraph story said that a deal could still be closed on Monday. Currencies were largely unaffected by Treasury Mnuchin's decision not to extend several of Fed's emergency credit facilities.

Credit. Credit markets only saw small moves yesterday, but the direction was generally wider. iTraxx Xover and Main widened 3bp and 1bp, respectively. In cash bonds, HY widened around 3bp, while IG was broadly unchanged.

Nordic macro and markets

No major Scandi releases today.