New US COVID-19 records and tighter restrictions in Europe

Market movers today

The main release today are the German IFO numbers for October. We expect the IFO indicator to mirror the PMI release on Friday and to show a manufacturing sector doing quite well while the service sector faces headwinds from the surge in COVID-19 cases. The expectation index may also weaken.

Later this week, the key event is the ECB meeting on Thursday, but the US and Euro area Q3 GDP releases on Thursday and Friday, respectively, will also be interesting.

The 60 second overview

COVID-19. Italy and Spain yesterday introduced new measures to combat the recent increase in new cases. Starting today, Italy is introducing the harshest public health restrictions since the spring. All bars and restaurants will have to close by 6pm, lasting for a month. Spain is introducing a nationwide curfew between 11pm and 6am. In Denmark, tighter restrictions are also implemented today, with the assembly ban lowered from 50 to 10 people. The US saw its highest ever number of new cases over the weekend. So far in October, 29 states have set records for increases in new cases, including five swing states in the upcoming presidential election.

Equities. As stimulus negotiations in the US continue to dominate stock markets, S&P500 ended 0.3% higher in the Friday session, while Dow Jones finished slightly in red. Asian markets are trading sideways this morning, whereas US and euro area futures trade in red on the back of the COVID-19 news and no clear progress on a US stimulus package.

FI. The spread compression between the periphery and the core-EU is set to continue this week after the positive rating action from S&P on Italy. S&P changed the negative outlook on Italian government bonds and moved it back to a stable outlook. The main event this week is the ECB meeting on Thursday. We do not expect any new measures from ECB other than sounding dovish as discussed in our ECB preview from October 22 despite the rise in infections and the renewed lock-down measures seen in many European countries.

Today, we will get the weekly prepayment data from the Danish mortgage bond market for the January 2021-term. We expect that the prepayments will have risen to some DKK30bn with one week left before the notification period on 1 November and that the total accumulated prepayments for the Jan-21 term will be approximately DKK50bn.

FX. The tone in EUR/USD remains set by external tailwinds. We argue that risk-reward favours selling SEK. We see downside risks to our 12M forecast for USD/CNY of 6.60.

Credit. Sentiment was good in credit markets on Friday. iTraxx Xover tightened 5bp, while Main tightened 1bp.

Nordic macro and markets

Sweden. The September trade balance and household lending are due for release. The trade balance has deteriorated throughout the year, registering a deficit in August. However, on a seasonally adjusted basis it actually shows a slight surplus over the past couple of months with both exports and imports rising on the back of an improving global business cycle. Contrary to the rising house prices, household lending growth has actually slowed slightly in past months. It is probably too early to expect a reacceleration.