Signs of stabilisation in equity markets
|Market movers today
Today, we get the advance release of the Euro area GDP figure for Q4. Given the lockdown we expect a grim reading, in the order of -1.5% q/q.
In Denmark the central bank releases currency reserve data. We will mostly look for any changes in the use of the government's commercial paper program.
COVID-19 vaccine news continues to be in focus.
The 60 second overview
Volatile trading days: There are some signs of stabilisation in equity markets which have otherwise seen investors on their toes in recent days as retail investors have piled into single stocks and then the silver market during the weekend. Thus, VIX came lower yesterday, although still at a high level indicating that short term bets are on a few volatile weeks ahead, and the S&P500 recorded its largest day-to-day change of this year at +1.6%.
US spending package: US President Joe Biden is taking on the first major legislative battle as he seeks to implement his USD 1.9tn spending package. Biden on Monday invited ten, mostly moderate, Republican senators in order to try to forge broader consensus for the stimulus plan. However, in spending terms differences remain large between the Republican proposal of USD 660bn and the Democrats' proposal of more than twice that amount, and Treasury Secretary Janet Yellen wrote on Sunday that "the benefits of acting now — and acting big — will far outweigh the costs in the long run". Following the meeting White House sources said that the President is likely to push through with the stimulus plan with or without the support of Republicans.
Vaccine: German chancellor Angela Merkel yesterday promised the German people that they would receive a vaccine before the end of September saying that "there will be no shortage of money nor commitment". Merkel has been under pressure from fellow coalition partners following the German push to focus on a common vaccine strategy for the entire European Union instead of teaming up only with a select few countries. According to Bloomberg, Germany - while collaborating with Italy and the Netherlands among others -was already in the spring last year in negotiations with pharmaceutical companies regarding contracts for future delivery, before changing strategies.
Adding to European vaccine woes, Balkan countries such as Serbia and North Macedonia still have not received a single dose under the EU distribution plan. Thus, both countries are currently looking to buy vaccines from China and Russia with potentially more Balkan neighbours to follow.
Equities: Equities saw a clear rebound on Monday, taking all major indexes higher without any obvious trigger. The rebound was most pronounced in the US, as Nasdaq surged 2.6% and Russell 2000 2.5% (following a five-day streak of declines). Hefty performance difference as the growth to value trade was re-fuelled, sending S&P and Dow 1.6% and a modest 0.8% higher each. All sectors were higher, but growth sectors such as Consumer Discretionary, Tech and Communication Services were among the clear leaders. Meanwhile, defensives like Consumer staples and Healthcare lagged. Asian stocks follow suit this morning, with China and South Korea leading and Japan lagging after extending lockdown measures. US futures indicate another green opening.
FI: There were modest movements in 10Y US Treasuries and Bunds yesterday. The US Treasury curve steepened modestly on the back of long-dated corporate bond issuance from e.g. Apple. In Europe there is also ultra-long issuance as we have more long-dated issuance from Finland (30Y) and Belgium (50Y) coming up. Fair value for the 30Y Finnish government bond is MS-3bp/4bp or some 8-9bp above Nether 0% 2052 and 16-17bp above Bund 0% 2050. We expect to see solid demand at both auctions despite the duration, but both the Finnish and Belgian government bond will offer a positive yield.
FX: USD made a strong comeback yesterday as the US economy continues to look strong. It took EUR/USD down towards 1.20. SEK was among the biggest losers, which saw EUR/SEK climb to the highest level so far this year.
Credit: The good sentiment from Friday continued yesterday where iTraxx Xover tightened to 266bp (-3bp) and Main to 52bp (-½bp). Cash bonds also did well, with HY tightening 4bp and IG tightening around ½bp.
Nordic macro and markets
Today's only event in Sweden is a parliamentary hearing of the Financial Stability Council about financial stability risks associated with the pandemic. Participants and scheduled speakers are Stefan Ingves, FSA's Erik Thedéen, SNDO's Hans Lindblad and the Minister of Financial Markets Per Bolund.
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