Uncertainty About President Trump’s State Of Health

Market movers today

Today’s highlight are the final service PMIs out of the euro area. We expect a poor reading, which will confirm the two-speed economic recovery with service PMIs underperforming manufacturing PMIs. This week is fairly light in terms of economic data releases. Key points are FOMC (Wed) and ECB (Thu) minutes as well as Chinese Caixin PMIs (Thu).

Markets will also monitor US President Trump’s COVID-19 infection.

The 60 second overview

Macro. The US job report on Friday was slightly weaker than expected as about 661,000 jobs were created in September (versus 859,000 expected), while the positive news was that the unemployment rate fell to 7.9% from 8.4% in August. However, the pace of employment generation appears to be slowing, leaving employment still almost 11m below pre-coronavirus levels and the number of permanently unemployed continued to edge up to 3.8m from 3.4m the months before.

The global manufacturing sector appears to be in good shape, while the service sector is witnessing new headwinds in the countries hit by new wave of coronavirus cases and light lockdowns. This morning the PMI manufacturing report for September showed improving production in Taiwan and South Korea, probably as they see stronger demand from China, whose economy is rebounding from the COVID-19 shock.

Donald Trump. People are still confused about President Donald Trump’s health after he tested positive with COVID-19 last week. While the White House and people near him continue to say he is doing fine and may be discharged today, a lot of ‘sources’ say that he is more sick than what officials let us know. What leaves us concerned is the fact that Donald Trump has received oxygen and three different treatments (remdesivir, dexamethasone and regeneron antibody cocktail). The first two are mostly used for severe cases, while the third is an experimental drug still not approved by the FDA. Since we do not know more than anyone else, we will monitor the development this week but it is interesting that Trump’s winning chances, according to prediction markets, have declined significantly after his positive test was made public. A new NBC/WSJ poll shows Biden is leading 53% versus 39% and that the lead has increased after the chaotic debate last week.

Brexit. While negotiations have not entered the ‘tunnel’ (i.e. leak free and fast tracked negotiations), PM Boris Johnson and EU Commission President Ursula von der Leyen agreed to continue negotiating and the negotiations will, as far as we know, continue this week and next week ahead of the EU summit on 15-16 October. Our base case remains that a deal is eventually more likely than not (60-40%) but at the end of the day it depends on both the EU’s and the UK’s willingness to compromise. We think the tone has been slightly more positive the past week despite no major breakthrough.

Equities. Asian shares and US equity futures this morning edged higher on reports that US president Donal Trump is recovering so fast from the COVID-19 virus that he could be discharged from hospital today. On Friday, US stock markets lost some ground, which was partly prompted by a weaker job report and uncertain prospects for approving a new US fiscal stimulus package as well as Trump’s state of health.

FI. 10Y US Treasury yields jumped some 4bp on Friday and the curve bear-steepened from the long end on the back of rally in the US equity market. The weaker-than-expected US labour market report had limited impact on the US treasury market. 10Y US yields continue to be caught in a fairly tight trading range between 0.6% and 0.8%. Short term we see limited risk of a break of this range. Today, the ECB will release details on the PEPP as well as PSPP. We expect the numbers to be supportive for the spread convergence between the periphery/semi-core versus core-EU government bonds. In Denmark, the weekly prepayment data is published and is expected to confirm our expectations for a total of DKK45-55bn in prepayments for January 2021.

We look at the green bond framework, the use of proceeds, the use of the second party opinion (SPO), issuance model/strategy and the reporting set-up provided for investors. We also look at the upcoming EU Green Bond Standard.

FX. Limited action in FX space on Friday where even the weaker-than-anticipated US job report did not change much. On Friday, EUR/USD moved slightly lower ending the day still above 1.17. Both EUR/SEK and EUR/NOK swung back and forth on Friday but ended close to where they started.

Credit. Credit markets continued their slow grinding tighter on Friday, with iTraxx Xover ending the day 2bp tighter and Main 1bp tighter.

Nordic macro and markets

There are no significant market movers in the Scandi countries today.

On Friday the registered (full-time) unemployment rate in Norway dropped from 4.2% in August to 3.7% in September. The figures confirm our expectations of a continued gradual improvement in the labour market. The level is marginally better than Norges Bank estimated at 3.8% from the September MPR. More importantly, the number of new vacancies is on a steady rise, indicating a pickup in demand for labour not visible in any surveys.