Market movers today
On today's calendar we have the US retail sales for December. We will monitor to see whether another decline from October/November was recorded. We also get the UK GDP figure for November, which we expect to print in negative territory on the back of the lockdowns (October release was 0.4% m/m).
In Sweden, we get inflation data for December. We forecast CPI, CPIF and CPIF excl. Energy at 0.2% y/y, 0.2% y/y and 0.9% y/y, respectively. This means we see CPIF 0.2 higher than Riksbank but CPIF excl. Energy 0.1 below Riksbank, see more below.
We also receive the final HICP inflation figures out of the eurozone.
In Germany, the CDU party convention starts today with the potential leader candidates speaking tomorrow. The CDU party will elect a new party leader to replace Merkel. That person may potentially become Chancellor after the September parliamentary election, when Merkel will officially step down.
The 60 second overview
Biden unveiled his short-term economic plan. Yesterday, Biden unveiled his economic plan to support the economy near term. Biden proposed a total package of USD1,900bn including a bigger household check, expanded unemployment benefits, more spending on health care, more support for small businesses, state and local aid and more money for vaccinations and testing . Given that Biden needs support from at least 10 Republican Senators to get it over the finish line, we expect the final package to be smaller, around USD1,000bn. Biden may decide to use the budget reconciliation process (requiring only simple majority) but that means he cannot use that for other priorities later. Overall, the stimuli-friendly US government package is set to be supportive for markets.
Fed Chair Powell pushed back on hawkish comments from colleagues. This week there has been a lot of focus on when the Fed will start tapering its QE bond buying with some of the less important voices saying it may not take long. Yesterday, Fed Chair Jerome Powell pushed back (similar to what Fed governor Lael Brainard and Fed Vice Chair Richard Clarida did the day before) saying that this is not the time to be talking about an exit and that the economy is far from its goals. The comments supported inflation with US 10Y breakeven inflation moving close to 2.1% during the American trading session and the Fed's monetary policy remains supportive for risk sentiment. We expect actual tapering to start in Q1 22.
Equities mostly higher yesterday with US stocks being the exception. Small cap continuing its strong run, while growth stocks remain under pressure. Asian markets are lower this morning led by South Korea. US and European futures also a bit lower. Later today the US earnings season will kick off with three of the big banks reporting. Bottom consensus are looking for a drop in earnings of 8% y/y. However, we argue it will be much closer to 0% as analyst upgrades during Q4 lagged reality.
FI. Bond yields in Europe and US declined modestly yesterday after a very busy week in the primary market. President-elect Joe Biden unveiled a new fiscal stimulus package for USD1.9trn for the US economy and with a majority in both houses, the plan should be passed very quickly. A fresh round of stimulus may lead to higher yields given the higher supply of US Treasuries and expectations of higher inflation.
FX. In an unusual session both EUR and USD were among the clear underperformers yesterday. The EUR was weighed down by Italian politics and ECB rate cut remarks, while the USD suffered from a drop in USD rates. At the other side of the spectre, commodity currencies like ZAR, RUB, AUD and NZD gained the most. NOK, SEK and GBP all ended the session 0.3-0.4% stronger versus EUR.
Credit. Despite the strong performance in equities yesterday, credit markets were broadly unchanged. CDS indices were more or less flat (Xover widened 1bp and Main widened only marginally), while IG tightened 1bp and HY was unchanged.
Nordic macro and markets
In Sweden, we get inflation data for December. Price swings are normally quite small in December, with the exception of travel. Both foreign and domestic airline ticket pricing as well as charter prices have been hard to collect and have therefore been imputed to a significant degree in 2020. We have assumed seasonally normal price swings for travel, but for obvious reasons uncertainty is very high, as a large amount of prices may have been imputed due to the second wave of COVID-19. We believe the significant strengthening of the SEK is a downside risk, although its impact and timing remain dim. Electricity and fuel prices rose in December, adding a tenth to CPIF. We forecast CPI, CPIF and CPIF excl. Energy at 0.2% y/y, 0.2% y/y and 0.9% y/y, respectively. This means we see CPIF 0.2 higher than Riksbank but CPIF excl. Energy 0.1 below Riksbank.
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