Market movers today
Today, we get the euro area industrial production for November as well as the US CPI core.
It is a busy day in terms of central bank speeches. In the US we have Fed's Brainard, Harker and Clarida on the wires while ECB's President Lagarde is speaking. Lagarde will speak ahead of the ECB silent period starting tomorrow. We have little expectations for new monetary policy signals from the ECB.
The Polish central bank holds its first meeting in 2021. We expect rates to be unchanged despite the governor sending dovish signals at the end of last year. We also look for its wording on the exchange rate which the central bank is implicitly targeting now.
The 60 second overview
Politics: The political impeachment discussion continues in Washington. Yesterday night The House voted to demand that vice president Pence use the 25th amendment to remove Trump from office. It leads up to today's vote to impeach Trump. But as we have mentioned before here in our morning mail, Trump is a person of the past, so do not expect any market or economic impact for that matter. We are much more focused on Biden's economic plan, which should be announced on Thursday. Biden has said the price tag on his economic package will be in the trillions while consensus is looking for a final plan slightly below USD 1trn. If we get a fast decision on a new fiscal plan it could further fuel the current economic optimism.
Fed: Earlier in the week Fed members like Barkin and Kaplan opened the discussion - in light of the vaccine roll-out and a better economic outlook for 2021 - of when the Fed should start to taper the QE purchases. However, yesterday other Fed Members like Bullard argued that it is far too early with this discussion given we are in a pandemic. However, the QE tapering discussion has now started and we should expect more volatility in respect of Fed pricing and also in respect of the long-end of the treasury curve going forward.
Treasury auction: We normally do not follow US Treasury auctions in our morning mail. But importantly, we saw yesterday that the 10Y UST auction attracted good investor demand as buyers felt tempted by the higher yield level. Together with the Fed comments mentioned above it pushed 10Y US yields down some 5bp. We will have a 30Y UST auction tonight which will also be followed closely by the market.
Equities: No clear direction on equities yesterday despite relatively big differences on sectors where cyclicals outperformed defensives. Energy and financials were yesterday's big winners while growth outperformed value and small cap beat large cap. Asian investors are showing more optimism this morning with stocks moving across countries. European and US futures pointing at small gains this morning.
FI: European yields continued to rise yesterday amid significant supply from SSAs and corporates as well as a bit of spill-over effect from the rise in US Treasury yields. We have also seen a widening of the spread between the Italy and Germany on the back of political concerns, where one of the government's coalition partners headed by ex-prime minister Renzi is threatening to withdraw from the government.
FX: GBP lead G10 gains in yesterday's session with EUR/GBP now back below the 0.90 threshold. EUR/USD moved back above 1.22 and broader USD strength generally supported commodity sensitive currencies in the likes of RUB, ZAR and NOK. EUR/SEK was little changed.
Credit: Credit markets continued Monday's weak sentiment. iTraxx Xover widened to 261bp (+7bp) and Main to 50bp (+1bp). Cash bonds generally did slightly better, with HY widening 3bp and IG 1bp wider.
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