ECB to step up bond buying

Market movers today

In Europe, there is focus on the corona vaccine from AstraZeneca after Denmark paused using the vaccine to probe blood clots fears as well as the company revising down delivery of vaccines to the EU due to global supply problems.

The UK monthly GDP estimate for January may show a new bout of negative growth amid spreading of the new COVID mutation requiring tight lockdown.

The contraction in Euro Area industrial production should have eased a bit in January amid strong global manufacturing demand.

In the US, the Michigan survey of consumer confidence is expected to show stronger confidence amid increased hopes for government assistance and reopening of the economy.

The 60 second overview

ECB: Yesterday, ECB announced that they 'expect' to use additional PEPP purchase 'over the next quarter... at a significantly higher pace than during the first months of this year' without explicitly committing to a purchase pace. Albeit the purchases potentially could start as early as today, Lagarde's focus on preventing tightening of financing conditions should be compared to ECB not sending signals to push rates lower. In gauging the financing conditions, ECB will use a holistic 'multifaceted' approach where essentially OIS rates, government bond rates but also corporate, bank lending rates are factored in. On the economic front, ECB conveyed a more balanced growth risk assessment but also downside risks near term. Inflation expectations are still subdued, but have picked up. Looking ahead, ECB will look through temporary / base effects on inflation. We also highlight that the staff projection for inflation in 2023 was left unchanged at 1.4%. As 'usual' ECB sources stories appear after the press conference. Yesterday media reported that ECB had a specific target for bond buying in mind, but decided not to disclose it. Further sources story could come in near future.

Vaccines: In the EU, vaccinations with AstraZeneca have been suspended in some EU countries (Denmark and the non-EU country Norway, among others) after some possible severe side effects (blood clots which, unfortunately, also have led to two deaths in Denmark and Austria). EMA, however, says the events are not related to the vaccines and says benefits still outweigh risks. We expect Denmark and Norway to resume vaccinations within a few weeks when the situation has been analysed. Our biggest concern is whether it will have any impact on the uptake of AstraZeneca, which already had a bad reputation in the EU population. Besides that, the Johnson & Johnson vaccine was approved in the EU yesterday but unfortunately the EU does not expect the first delivery until April and the company is struggling to meet its delivery target in Q2. The same goes for AstraZeneca and also Moderna is set to deliver fewer doses. Overall, the biggest problem for the EU remains lack of supply near-term. The COVID-19 picture is mixed in the US and in Europe. On a positive note, data continues to show that the vaccines are working, also against new variants. Read about this and much more in our weekly update.

Equities: Equities broadly higher yesterday together with most other risky assets as the goldilocks environment returned. In Europe defensive sector gained support in ECB message while cyclicals took the lead in US on increased growth expectations and the relief bill. Growth and momentum outperforming from a factor perspective. The positive sentiment continues this morning across Asian indices and most European and US futures showing small gains.

FI: Yesterday's main event, the ECB meeting, led European rates to a bull flattener move. The ECB's decision to 'significantly' increase the PEPP implementation was a slight dovish surprise. 10y German Bunds declined 4bp on the announcement but gradually crept higher during the press conference and ended 2bp lower compared to Wednesday's close. Intra-euro area spreads tightened where notably the Italian-German spread tightened 5bp, to stand at 93bp, just 3bp away from recent lows. The much awaited 30y UST sale went well leaving the FOMC meeting on Wednesday as the next key event for rates markets.

FX: EUR/USD moved close to the 1.20 threshold in yesterday's session which was characterised by broad USD weakness. EM currencies generally gained while NOK, SEK and GBP were little changed. The most interesting thing of the day happened late in the session when Danmarks Nationalbank announced a technical overhaul of its monetary policy operations.

Credit: Wednesday's good sentiment in credit extended into Thursday and also reached cash bonds. iTraxx Xover tightened a full 9bp (to 237bp) and Main closed almost 2bp tighter in 46½bp. HY tightened 6bp on average and IG ended around ½bp tighter.