Trump impeached, political chaos in Italy and Fed push back

Market movers today

In the US, President-elect Biden is set to release his stimuli proposal today, including an expected USD2000 in direct transfer and expanded unemployment benefits. Unconfirmed media reports say that Biden is likely to propose a total package of USD2,000bn.

The ECB minutes from the December meeting where the ECB recalibrated the PEPP and TLTROs are due for release. As the ECB's policy is set for now, we doubt that markets will react to the release. We expect there to have been a discussion about the size and length of the PEPP package as well as the TLTRO terms. Today, ECB GC members enter the silent period, where no comments on monetary policy are allowed.

Developments in Italian politics will attract attention (see more below).

The 60 second overview

Renewed political chaos in Italy. The Italian coalition government may be near collapse after the small (but king-maker) party IV, headed by Matteo Renzi, has pulled its ministers in a rift over how the EU recovery fund proceeds should be used. PM Conte, who has been relying on IV votes, may now call for a parliamentary vote of confidence. Should Conte lose that vote, the options are likely a Conte resignation or him being in charge of a care-taker government. Italian government bonds have underperformed in recent days, but we attribute this mainly to internal political noise rather than a new Italian political crisis that would send Italian government bond yields higher relative to Germany more significantly and long-lasting.

Johnson & Johnson vaccine news. Johnson & Johnson's vaccine is safe and effective according to early study results, see CNBC. We know Johnson & Johnson is likely soon ready with its phase 3 trial data so that it can apply for emergency use authorisation in the US as early as next week. Yesterday, Reuters wrote that the company will seek authorisation in the EU in February. Unfortunately, there was also a story that its vaccine production may not be as high as previously announced due to 'unanticipated manufacturing delays'. Continued positive vaccine news, including the approval of more vaccines, is important for risk appetite.

Fed push back. There have been several Fed speeches and interviews this week ahead of the blackout period beginning on Saturday, which have caused a repricing of Fed. Interestingly, both Fed vice chair Richard Clarida and Fed governor Lael Brainard pushed the idea that the Fed is going to tighten prematurely, which sent 5Y US Treasury yields back below 0.5% yesterday.

Trump impeached again. Yesterday, the House voted to impeach US President Trump for the second time (first time a President is impeached twice) as expected and it is now up to the Senate to decide whether to declare him guilty or not. Markets once again ignored the development, as Trump is a person of the past, as President-elect Joe Biden is being inaugurated as the next US President next week.

Equities slightly higher yesterday and again with very mixed sector outcome. Sector moves from Tuesday more or less reversed yesterday. VIX index took a little step lower but remains in the area just above 20. Asia equities trading mixed early Thursday. Japan leading with sharp gains in Nikkei, while most of the other countries in Asia are lower. European and US futures only with small moves this morning

FI. After the sell-off at the start of the year, the EGB sphere recorded solid performance yesterday. The 10Y Bund yield declined 5.4bp to -52.4bp, which led the rest of the EGB yield curves lower. Spread to semi-core and periphery countries widened marginally by 0.5-1bp. The rally in bond markets was led by the long end. With the resignation of ministers in the Italian government, we expect a weak opening in BTPs this morning after being one of the strongest performing jurisdictions yesterday (resignation came after market close).

FX. Yesterday's session left SEK as the biggest loser in majors' space following the Riksbank's announcement of forthcoming (smoothed) SEK selling in order to build up the FX reserve. Oil currencies NOK and CAD gained modestly, while EUR/USD moved back below the 1.2200 threshold. GBP saw continued gains with EUR/GBP temporarily moving below 0.89 for the first time since November.

Credit. Sentiment improved in credit markets yesterday where iTraxx Xover tightened 13bp and Main 1bp. While IG spreads were more or less unchanged, there was a small widening tendency in the HY segment.

Nordic macro and markets

Swedish labour market data. Earlier this morning we received unemployment data (December) from PES. According to these, the Swedish unemployment rate rose slightly to 8.8% (up from 8.7% in November). Usually, we highlight the LFS data from Statistics Sweden instead, but due to a pending change in methodology and a re-definition of the term 'employed', we are in for a break of the LFS time series starting from the January numbers. Thus, it is likely that more weight will be put on the PES's measure, starting with next month's release.