Further manufacturing strength as Germany closes down further

Market movers today

In the US, the Electoral College meets today to vote on who should become the next president of the US. President Trump previously said he would accept the election result when the electors have voted, but let's see. Nonetheless, the US election has moved into the background given Biden's clear victory.

On the data front, the rest of Monday will be fairly quiet after the Japanese Tankan survey was released earlier this morning. We have euro area industrial production, where we are likely to see further recovery.

Early Tuesday morning, we look for more strong readings from China in industrial production and retail sales, as signalled by robust PMI readings lately.

Later this week, a series of central bank meetings are due, with the Fed on Wednesday, Norges Bank and the Bank of England on Thursday and Bank of Japan on Friday. We will also watch the Brexit talks closely as the New Year's deadline moves closer.

The 60 second overview

Lockdowns. Germany imposed stricter lockdowns yesterday, effective Wednesday, as the number of confirmed coronavirus cases has surged recently. Schools and all non-essential shops will have to close until at least 10 January. Affected companies will be supported by the government with a total of around EUR11bn (USD13.3bn) a month.

Vaccines. US FDA grants Emergency Use Authorisation for Pfizer: On Saturday, the US FDA authorised Pfizer's vaccine for emergency use and the vaccination process will begin today. Europe is lagging behind but the EU EMA has said a decision will be taken no later than 29 December (although no one expects the EMA to come to a different conclusion to the health authorities in the US, the UK and Canada).

Keep talking. Another deadline, another extension. The EU and the UK have decided to keep on talking, as there has been some progress over the past couple of days. It seems like Brexit will come down to the wire, with the decision being taken extremely close to the only real, hard deadline on 31 December. We think it is 50/50 where we end up.

Macro. We received further proof of the strong global recovery in manufacturing from the Bank of Japan's quarterly large business Tankan survey this morning. Business conditions of large Japanese manufacturers increased to -10 in Q4 from -27 in Q3, better than expected (-15). The index is measured by subtracting the number of companies saying business conditions are negative from those responding they are positive. Thus we are far above the -34 trough in Q2 but still slightly below the -8 level measured in Q1.

Equities: Small setback for equities Friday driven by Europe, while Emerging Markets and Japan ended higher. Equites were also lower for the week after a very positive run since the start of November, with global stocks 13% higher (MSCI World). Uncertainty is creeping up a bit, not least due to politics and the VIX index ending the week at 23.3. Asian markets are mixed this morning, while futures in Europe and the US are higher.

FI: Friday's bull flattening move on the EGB curves due to increased concerns about further lockdowns, notably in Germany, and the Brexit headlines sent core yields lower by 3-4bp in the 10y area. The spread widening to the periphery suggested a normal risk-off move. The 10s30s cash curve flattened by 2bp.

FX: EUR/GBP, EUR/SEK and EUR/NOK all moved higher (and EUR/USD lower) on Friday on negative risk sentiment amid the repricing of a no-deal Brexit risk premium. After talks were extended again yesterday, the three currency pairs all moved lower (and EUR/USD higher) again in early trading on Sunday. Near term, GBP, SEK, NOK and EUR remain exposed to risk sentiment and Brexit news.

Credit: Credit markets sold off on Friday, where iTraxx Xover widened to 266bp (+15bp) and Main to 51bp (+3bp). Cash bonds did better, with HY widening 5bp and IG more or less unchanged.

Nordic macro and markets

On Friday, we published Reading the Markets Norway, 11 December, which this time serves as our preview ahead of Thursday's Norges Bank (NB) meeting. We expect NB to leave rates unchanged and reiterate its verbal guidance: "In the Committee's current assessment of the outlook and balance of risks, the policy rate will most likely remain at today's level for some time ahead". We expect NB to lift the rate path and signal the first 25bp rate hike in June 2022 (from c75% of first hike in September 2022 in the last rate path). Hence, we think it's still too early for NB to significantly firm its forward guidance on hikes as near-term uncertainty remains very high. Ultimately, our call is still for the first hike coming in December 2021, but we believe we are not yet at a stage where NB feels comfortable sending a more aggressive signal.