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Delay In Vaccine Roll – Out Can Turn Into Political Risk For The EU

Market movers today

  • Today’s focus is the EMA meeting which is set to discuss (and approve) the AstraZeneca vaccine. This got another layer of interest as Germany has said that they will not use it for the 65y+ age group, as rumoured by Handelsblatt earlier this week.
  • We also get advance releases of the French and German GDP figures for Q4, however with no breakdown allowing for deeper examination of the drivers. Monthly HICP figures from euro area countries are also released, albeit the total HICP release is only on Wednesday.
  • In the US, monthly PCE core is released.

The 60 second overview

Macro: A fairly calm day in markets yesterday after a few days of negative news not least regarding the European recovery due the delay in vaccine roll-outs. However, the very short end of the euro yield curve continues to move lower following recent days’ communication from ECB governing council members indicating that markets should not rule out a cut. In the US inflation expectations continue to move higher and break-evens are now close to the highs from 2018 (2.2%). Stock markets in Asia closed lower this morning with South Korean stocks down more than 3%.

Vaccine: The European Commission will today put forward a proposal which in effect will require EU based companies to ask for permits before shipping vaccines out of the EU. Specifically, companies will need to notify national authorities of the destination and amounts of any exports. The ask-for-permit proposal will mean that authorities are able to hold back any exports until a set of pre-defined criteria has been met, including that the companies have delivered sufficient vaccine supplies to EU member states as per existing agreements. The reaction from the Commission comes after AstraZeneca last week told that there would be delays in the vaccine supply. AstraZeneca delivers 400 million out of 2.3 billion dozes to be delivered to EU member states.

Positive news on the vaccine front, however, is that both the Moderna and Pfizer vaccines appears effective against the British and South African mutations (see COVID-19 Update: Moderna and Pfizer vaccines also effective against new variants, 28 January). The US biotech company Novavax yesterday reported that its product has an efficacy of close to 90% in phase 3 trials, however is less effective towards the South African variant.

Sustainable infrastructure: Sustainable infrastructure projects are currently in high demand among Nordic asset managers. On Monday the largest Danish pension fund ATP, with an AUM of DKK 900bn, said that it would increase its presence in the segment, and yesterday the head of Norway’s sovereign wealth fund, Nicolai Tangen, said that it had completely exited the market of oil exploration and production with an aim to increase investments in other more sustainable areas. Tangen also indicated that the green segment is getting a crowded trade with supply not able to keep up with demand among investors.

Equities: A little comeback for stocks yesterday but in very volatile trading sessions. VIX ended the day sharply lower, now standing at 30, but volatility in futures has continued overnight and both European and US futures are sharply lower this morning. US equities finished mostly higher in Thursday trading, somewhat off best levels Dow +1.0%, S&P 500 +1.0%, Nasdaq +0.5%, Russell 2000 -0.1%. Financials, materials, industrials were among the best performers. REITs, consumer sectors, tech trailed.

The retail-driven short squeeze trade continues to dominate headlines and several retail brokerages restricted trading in some of the most traded names.

Heightened volatility continues in Asia this morning with South Korean stocks down more than 3%.

FI: It has again been a very busy week in terms of issuance in the European fixed income market with plenty of syndicated deals. However, there has been significant demand at most of the syndicated deals. Furthermore, it has been remarkable to see the performance in the ultra-long end of the core EU government bond markets despite the issuance. Hence, 10Y German yields continue to range-trade around the -0.5%-level.

FX: As we have seen time and time again, risk off periods are quite transitory. EUR/USD found some support as equities rallied and the dollar decline generally supported NOK too.

Credit: Yesterday was quite a roller coaster day in credit markets, with Xover having widened around 9bp by noon, but staging an afternoon rally to end 3bp tighter in 267bp while Main ended in 52bp (more or less unchanged). The late-session bullish sentiment escaped cash bonds and HY finished the day 8bp wider and IG 3bp wider.

Nordic macro and markets

Following the introduction of the new national coronavirus restrictions in Norway at New Year, some industries – especially in the service sector – have had to embark on a further round of temporary and permanent layoffs. The weekly unemployment numbers suggest, however, that the impact has been somewhat smaller than when the previous set of restrictions were introduced in November, and we expect only a moderate increase in seasonally adjusted unemployment rate from 3.9% in December to 4.1% in January. Keep an eye on household credit growth as well, which is beginning to push up on the back of the strong housing market last year. Norges Bank is probably much more likely to react to strong credit growth than to housing price inflation when taking account of financial stability in its rate setting going forward.

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