Markets
Global core bonds edged higher today with German Bunds outperforming US Treasuries. There was no clear trigger even if lower oil prices might be partly at play. OPEC secretary general Barkindo said that the oil market remains very well supplied going forward. European stock markets also failed to hang on to opening gains. The Bund’s outperformance occurred amid a dismal-received long Bund auction. The intraday upleg accelerated somewhat after the German 10-yr yield gave away minor support around 0.48%. German FM Scholz said that the country will continue to bring the debt ratio down towards 50% of GDP. Softer-than-expected US housing data went unnoticed with FOMC Minutes still on traders’ watch. Expectations of breathtaking news are rather low given that we’ve already had a policy statement, new projections and a press conference. US yields decline by up to 0.9 bps (10-yr) at the time of writing. The German yield curve shifts 1.4 bps (2-yr) to 2.7 bps (10-yr) lower. 10-yr yield spread changes vs Germany widen by 5 bps for Greece and 9 bps for Italy.
Global equity markets took a more cautious approach today after yesterday’s forceful rebound in the US. European equities and US futures showed moderate losses. There was no clear driver for USD trading over de previous days. The dollar returned to pole position on the currency markets today. Interest rate differentials re-widened in favour of the greenback as Bunds clearly outperformed US Treasuries. Are markets anticipating hawkish Fed minutes this evening? EUR/USD drifted further south off the 1.16/1.1620 resistance area which was rejected over the previous days. The pair trades currently in the 1.1535 area. USD/JPY holds up rather well given the loss of momentum at equity markets. The pair holds north of 112 (currently 112.30).
Sterling regained modest ground in technical trade yesterday. Strong wage data triggered a further reduction of GBP shorts. The glass was half empty today for the UK currency. Comments from EU officials suggested that any further progress on Brexit would be difficult at this evening’s EU summit. In addition, UK September CPI inflation came out softer than expected at 2.4% Y/Y for the headline measure (2.6% was expected) and 1.9% Y/Y for the core measure (2.0% expected). The report probably didn’t change the BoE’s rate hike intentions in any profound way. Further gradual BoE rate hikes are de facto conditional on the UK leaving the EU in an orderly way. This condition isn’t met yet. The report suggested that the BoE shouldn’t feel pressured to take action anyway, contrary to yesterday’s higher than expected wage data. EUR/GBP jumped temporary a few ticks above the 0.88 level after the CPI release, but trades currently again in the 0.8795 area, awaiting the developments in Brussels this evening. Soft CPI data and some overall USD gains pushed cable back south. The pair trades currently in the 1.3115 area.
News Headlines
Members of the 46-nation Government Procurement Agreement failed to reach an agreement for the UK to stay in the pact. Britain’s bid to (re)-join the agreement will again be considered next month. A failure to reach an agreement could prevent UK companies from applying for government contracts in the member countries.
EU car sales for the month of September as reported by the ACEA industry body nosedived 23.5% Y/Y. On September 01, new emission and fuel-consumption testing procedures were introduced. Sales in July and August jumped higher as automakers at that time gave substantial discounts to reduce inventories.
US September housing data printed slightly softer than expected. Housing starts dropped 5.3% M/M to a 1.201m annualized rate. The decline might have been affected by hurricane Florence. Permits declined 0.6% M/M. A 2.0% rebound was expected. Bot series show some loss of momentum, but remain at fairly lofty levels.
