Erste Group Research
Credit markets hope for ECB support
In view of the continuing high infection rates, a further easing of monetary policy is expected at the upcoming ECB meeting. A continuation of bond purchases beyond June 30, 2021, would be an important support factor for the credit markets in addition to the hoped-for containment of the pandemic. However, an extension of the refinancing facility (TLTRO3) would also be accompanied by lower issuing activity in the banking segment, especially for covered bonds.
CEE road to recovery still full of ups and downs
We expect CEE economies to grow by 3.6% in 2021, somewhat slower due to the negative impact of the second wave of the pandemic on 4Q20 growth and the assumption that some restrictive measures may remain in place in 1Q21. Next year’s recovery will be mainly driven by improved private consumption and export activity. However, the uncertainty surrounding the further development of the pandemic is still high.
Euro on the rise
In the current environment, we assume that the euro could appreciate noticeably against the dollar by the end of the first quarter of 2021. The yen should continue its longer-term downtrend against the euro. As a dynamic recovery of the global economy is expected in the coming year, the Swiss franc should come under selling pressure as a safe-haven investment. We expect a gradual depreciation of the Swiss franc against the euro.
How is the Fed reacting to rising infection rates?
In the US, the dynamics of COVID-19 infections have recently become much more vivid. There is currently no indication that the US Fed will react to this. It may be possible to set a minimum period for the purchase of government bonds and mortgage bonds. What the Fed will not deal with is the extension of credit programs, which will expire at the end of December, according to the Treasury secretary's wishes. Other programs to support individual sectors of the financial market are to be extended by 90 days.
Nestle scores in e-commerce
Nestle grew stronger again in the third quarter. From July to September, sales increased by 4.9%, after the pace of growth had slowed to 1.3% in the second quarter. Online sales picked up significantly, with a 48% increase in turnover. In addition, Nestle is fully on-track with regard to the planned restructuring of the group. For the 2020 financial year, management expects growth of +3%.
Household consumption and export supported recovery
This week, CEE countries will publish their detailed 3Q GDP data. The data should confirm a strong rebound in 3Q, which has already been seen in flash estimates, and should reveal the main sources of recovery. We suspect that these were exports and household consumption. In Poland, published data showed return of private consumption into positive territory in 3Q20 after a double-digit contraction in the previous quarter.
Markets wait and see
The ECB and US Fed are not expected to make any significant changes in monetary policy in the foreseeable future, thus no impulses for the bond markets are to be expected. Instead, the economic outlook and political risks are likely to be the decisive criteria for the development of yields in the Eurozone and the US. At present, the markets seem to be waiting to see how the topics COVID-19, the US presidential election and Brexit develop.
