Deciding day for the balance of power in the US congress

Market movers today

The big event of today is the run-off for the two US senate seats in Georgia. The run-off is crucial as if the Democrats take both seats, they gain control of both chambers of the US Congress, allowing them to pursue their policy agenda more aggressively. The polls are very close with a slight advantage for the two Democrat candidates. The results are expected early Wednesday morning. 

US ISM manufacturing is expected to remain fairly unchanged at a relatively high level of 57, indicating robust growth in the US manufacturing sector in December.

German retail sales are expected to have slowed down in November as COVID-19 restrictions were adopted.

The 60 second overview

Equities. The new year started with a volatile session. At the US opening bell, Europe gave up the earlier advance and US equities slid into red. All major indices closed lower, with S&P losing 1.5% to the record-high set in the previous session. Coronavirus-affected Airlines and Hotels ranked among the biggest losers together with yield-sensitive sectors such as Utilities and Real estate. This followed as the 10-year breakeven rate breached 2% for the first time since late-2018. At-home plays, such as Consumer Staples, held up better along with Materials. Similarly, the VIX bloated to 27. Asian markets are mostly lower this morning and US futures indicate a muted opening.

Oil price. OPEC+ held its first monthly meeting in 2021 yesterday but failed to reach a decision on its output cut tapering schedule. Russia is arguing for increasing supplies by a further 500,000 in February. Meanwhile, Russia and other prominent members are worried about the prospects of weaker short-term demand amid the new mutation of the COVID-19 virus calling it 'a worrying and unpredictable development'. The meeting continues today with Brent Crude trading modestly lower close to USD51/bbl.

UK lockdown. Yesterday evening Prime Minister Boris Johnson announced the third national lockdown ordering people to stay at home until at least 15 February. The measures take place with immediate effect and challenge activity prospects in the service sector. This has left GBP as the big loser in FX space.

Vaccines. In the EU, EMA did not conclude its meeting on whether to approve the Moderna vaccine or not and the discussions will continue on Wednesday. We still believe the vaccine will get approval. Moderna also revised up its production forecast for this year and now says it will produce 'at least 600 million doses', up from 500 million previously. 

Trade war. The New York Stock Exchange (NYSE) has backtracked on its decision to delist three prominent Chinese members 'in light of further consultation with relevant regulatory authorities'. NYSE had otherwise been ordered to do so by an executive order from the Trump administration instructing US investors to disinvest from companies that have alleged ties to the Chinese military. The decision could be another sign that the Biden administration will pursue a less confrontational course with China.

FI. There was a solid rally in the core-EU markets driven by the long end with a bullish flattening of the German government yield curve. The combination of rising infections and comments from ECB's De Cos regarding yield curve control using e.g. the EUR OIS curve put downward pressure on core-EU yields yesterday. Hence, the curve flattened despite the string of new syndicated deals from both EU sovereigns as well as agencies.

FX. CHF and EUR got off to the best start on 2021, while GBP was the biggest loser. The latter was hit by another national lockdown. Scandies, and in particular SEK, lost some momentum amid widespread risk off yesterday.

Credit. Although sentiment started out on a positive note, it took a turn for the worse during the afternoon causing iTraxx Xover to widen to 252bp (+10bp) and Main to 49bp (+1bp). Cash bonds fared better, with IG around unchanged and HY tightening 2bp. The primary market opened today where BMW did a dual-tranche transaction, raising EUR1.5bn in total at prices very close to its secondary curve, while managing to attract more than EUR6bn in orders.