Vaccine Delays Causing Limited EU Critique

Fundamental analysis of Forex market

Market movers today

  • Today the main mover is the US ISM manufacturing index for January. It has been on a rising path since April but is probably close to a peak as Chinese PMI’s point to a peak in the global manufacturing cycle.
  • We also get PMI’s for Scandi countries and the UK as well as final PMI’s for the euro area.
  • On top of COVID and vaccine news focus later in the week turns to US non-farm payrolls (Friday), euro CPI (Tuesday), euro GDP (Wednesday) and Bank of England meeting (Thursday).

The 60 second overview

Macro: Markets do not seem to have taken too much notice of the delay in vaccine deliveries to EU member states so far. Thus, equity underperformance has been limited and other market indicators do not suggest that markets are pricing in a significantly heightened risk of EU falling behind peers in the longer term. One reason could be that so far there has been limited talks among national governments that the European Commission is to blame for the delays limiting the risk of euro scepticism flaring up in the short term. Asian stocks are generally higher this morning as retail investors’ bets flow into the silver market (silver futures up 9%).

Vaccine: On Friday, the EU approved the AstraZeneca vaccine for adults +18 years old (including +65 years old despite lack of data) and the company has now agreed to deliver 40 million doses to the EU here in Q1, although this remains at half the amount AstraZeneca had initially committed to in Q1. Also on Friday, Johnson & Johnson released interim phase 3 results showing a high efficacy especially in the US (72% versus 57% in South Africa, probably due to the South African variant). Notably, there have not really been any severe cases in any vaccine trials so far. In Israel, a new study shows that just 0.04% of Israeli receiving both Pfizer shots have contracted COVID-19 one week after the second shot with the effectiveness calculated to be 92%, see The Jerusalem Post. Overall, we think vaccine news continues to be positive but we are still monitoring the conclusions on the vaccines’ effectiveness versus new variants, which seems likely to be the biggest risk to the consensus narrative that we can put the pandemic behind us this year.

Positive news on the vaccine front is also that both the Moderna and Pfizer vaccines appear effective against the British and South African mutations (see COVID-19 Update: Moderna and Pfizer vaccines also effective against new variants, 28 January).

Oil merger talks: Dow Jones reports that Exxon and Chevron held preliminary merger talks when the pandemic hit back in March curbing global oil demand, but that talks are no longer ongoing. A possible merger between two of the world’s largest oil and gas producing companies would result in a joint market cap of USD 350bn. The global non-renewable energy sector has generally been underperforming broad market indices during the past year with Exxon being down 30% and Chevron 23% relative to a 10% rise in S&P500. Staying in the oil sector OPEC+ reports almost full compliance with the production cuts introduced in January (7% cut to production). Oil prices has remained stable throughout January at USD 55/bbl.

Equities: Equity markets finished sharply lower in the final session for the week. US underperformed Europe, with S&P 500 down -1.9%, Nasdaq and Dow -2.0% but small caps outperforming with Russel -1.6%. Sector performance was in a classic risk off-mode, with Energy, Tech and Industrials the biggest decliners and bond proxies like Utilities, Health Care and Real Estate holding up the best, albeit all sectors lower. Brokerage firms like Robinhood partially lifted some of the restrictions implemented Thursday, which left Gamestop and AMC as the few gainers in the market. Asian markets are rebounding this morning though, with China and South Korea leading despite weak PMI data. US markets futures also suggest a modest rebound.

FI: On Friday, European rates rose across the board, from the long end. The bearish steepening lead 10s30s to the steepest levels since the pandemic hit Europe hard in March last year (10s30s steepened 6bp in January alone). The French, Belgian and Irish curves underperformed peers. France will sell significant longer-dated bonds this week. The front end of the EUR curve repriced 1bp further after the sharp reaction on Wednesday when ECB comments reinvigorated rate cut discussions. There are currently priced in 5bp rate cut by the ECB in Q3 21.

FX: EUR/USD was unaffected by the vaccine related policy turmoil in EU on Friday and trades close to 1.21. Scandie central banks will be more active in FX markets during February which would be slightly negative for SEK and positive NOK.

Credit: Though CDS indices sold off slightly on Friday, with iTraxx Xover widening to 269bp (+2bp) and main was more or less unchanged at 52bp, cash bonds were in decent demand and HY tightened c.5bp and IG 1bp.

Nordic macro and markets

Monday the Q4 GDP indicator will be at the centre of attention in Sweden. We expect a 1.0 % qoq sa print, however note that indicators are split as the sales and activity indicators as well as the production value index suggest growth in excess of 2 % while hours worked and the consumption indicator suggest flat or even negative growth. The January manufacturing PMI appears set to back down slightly from the multi-year high set in December. Also, the Riksbank will buy SEK 1bn 3m T-bills.