Market movers today
We open the week with a thin schedule on the data front. In Denmark, we get September CPI inflation. We expect an increase to 0.7% from 0.5% in August driven mainly by the April increase in tobacco taxes and a rebound in housing equipment following a late summer sale.
In Sweden we get monthly (September) unemployment figures and weekly notice data, both from PES. Both releases are likely to point to some improvement, or at the very least stabilisation, of the Swedish labour market.
This week, we will look for Brexit headlines in the run-up to the EU summit. The UK has said the summit marks a deadline for agreeing on a trade deal and that it will withdraw from negotiations and prepare for a hard Brexit if there is none. We think the end of the transmission period on 31 December is still way too far ahead for a deal to be struck already and we expect negotiations to continue, also after this week.
We also have a lot of central bank speakers this week as IMF Autumn forecast and subsequent (virtual) meetings will take place this week. Lagarde and de Guindos speak today.
The 60 second overview
US fiscal package. Over the weekend, US president Trump and House speaker Pelosi disagreed on reasons for no progress on the US fiscal deal. Pelosi and Mnuchin are said to meet again this week to make substantial progress. Market expectations for a deal before the US presidential election are slim and it may be the bout of positivity needed for another risk positive trigger. Fed’s Kashkari said that the economic recovery is flattening out and fiscal support is vital.
PBOC. The PBOC announced a lowering of the risk reserves ratio for financial institutions on certain FX forward trading activities from 20% to 0% effective today.
EU. EU budget talks (including on the recovery fund) still seem deadlocked. Last week the German Council presidency tried to break the logjam with a new proposal that would increase funding for some EU budgetary items by ‘single-digit billions’ in exchange for MEPs approval of the rule of law mechanism that is holding up the recovery fund. However, so far MEPs don’t seem willing to give in just yet (negotiations will continue on Wednesday). Overall, we still expect the EU budget & recovery fund to pass, but it might not be fully ratified by the end of this year, potentially delaying the operation of the recovery fund in Q1 21.
Equities. A solid equity performance on Friday led to major global indices performing 0.6% to 1%. Equity futures are currently pointing to another positive session this morning. Asian equity markets are up 1-2%, with the exception of Japan, which is broadly unchanged at the time of writing.
FI. Friday’s trading session was a repetition of prevailing dynamics in recent days/weeks; risk positive environment leading to Bunds trading in a tight range and BTPs-Bund spreads continuing to tighten. The spread currently stands at 125bp, which pre-dates the Italian political turmoil starting in 2018.
FX. A strong session for risky assets on Friday was accompanied by expected FX price action: USD weakened alongside other safe havens, commodity currencies strengthened, Scandies were stronger, EUR higher and NOK among the top performers with USD/NOK down almost 1.5% on the session.
Credit. Credit markets were in a good mood on Friday where iTraxx Xover tightened to 316bp and Main to 52bp.