Markets
Global core bonds lost ground today. German Bunds immediately edged lower at the opening bell as European equities opened in green, continuing the modest improved risk sentiment on Asian bourses. Risk appetite was today’s main driver in absence of economic data to steer trading. Calm returned to financial markets after last week’s Brexit rollercoaster. PM May is not backing down and is pushing through with her Brexit deal, despite the Eurosceptic Tories collecting the support for a vote of confidence. UK media reports 42 votes are locked, six short of the threshold of 48 votes. EU negotiator Barnier signaled the EU was willing to extend the transition period to the end of 2022, instead of 2020, while May was seeking support of UK businesses. In the meantime, Spain stated that it seeks more assurance on Gibraltar before it could back the Brexit deal, proving EU countries will not blindly accept the deal on the table. UST’s moved on Friday in the direction of some technical support levels (10-yr, 3.06%) on several Fed members signaling a more cautious outlook. A break didn’t occur as there was no news to trade on today, leading US Treasuries gradually lower and pushing US yields higher across the curve. Changes range from +2.1 bps (5-yr) to +2.7 bps (30-yr). German yield curve steepens with changes from +1.1 bps(2-yr) to +2.7 bps (30-yr).
At the end of last week, the dollar lost substantial ground. Several Fed speakers indicated that slower global growth could become a factor of significance for Fed policy going forward. The jury is still out whether/when the Fed will indeed slow its path of policy normalization. Even so, the US dollar lost interest rate support and declined off recent peak levels. Today, core US and European yields rebounded a few basis points even as sentiment on risk remained fragile. Especially US equity futures are facing headwinds. Again, this tentative risk-off context didn’t help the dollar much. The US currency also didn’t profit from its usual invers correlation with oil as crude oil futures resumed their decline. The trade-weighted dollar hovers in the 96.40 area. EUR/USD even gains a few ticks. There were few eco data. Spain made some reservations on approving the Brexit deal due to uncertainty on Gibraltar. However, the euro maintains the benefit of the doubt. EUR/USD trades currently in the 1.1430 area. USD/JPY shows directionless trading in a tight sideways range. The pair is currently trading in the 112.80 area.
The moves in sterling were much more moderate today compared to the end of last week. If anything, the UK currency lost marginal further ground. UK PM May continued her efforts to ‘sell’ her Brexit deal to Parliament but also tries to get support from the public on her approach. For now, there is no indication that she is making any progress in solving the Brexit stalemate. In technical trading, EUR/GBP touched a new ST correction top. The pair is trading in the 0.89 area. Cable is little changed in the mid 1.28 area.
News Headlines
The Belgian debt agency raised €3.38bn by tapping 4 OLO’s today (€0.7bn 0.5% Oct2024; €1.61bn 0.8% Jun2028; €0.48bn 3% Jun2034; €0.59bn 2.25% Jun2057). The auction bid cover was 1.84. It was the final auction of the year. Belgium raised €33.81bn in OLO funding this year, which is more than the €31bn targeted at the start of the year.
French ECB policy maker Villeroy de Galhau said that the ECB could consider a fresh round of TLTRO’s next year. On a more hawkish note, he suggested that the central bank should reduce the pace of reinvestments only after the first rate increase. Market consensus currently doesn’t expect a slowdown of reinvestments in the policy horizon.
The German Bundesbank expects a fairly strong German growth in the final quarter of this year, following the negative GDP figure in Q3. Output and exports in the auto sector are forecast to return to normal after the introduction of the new emissions-measurement standards. Outstanding income and labor market prospects are expected to give a new boost to consumption.
