Markets
Global core bonds edged lower today as risk sentiment improved. This morning, Asian markets initially continued recent slide but most indices paired losses throughout the day. It preluded the improvement of risk sentiment, as European equities are currently reaping gains as well. US markets opened in green too. The Brexit storm eased, at least temporary. Investors’ focus shifted to the European Commission opinion on EMU countries budget proposals. Naturally, Italy was the protagonist. Italian BTP’s opened higher on Italian media reporting that Deputy PM Salvini may be open to revise the 2019 budget. Salvini later specified the budget stays as it is and only little tweaks are possible, causing BTP’s to pair some of it gains. At noon, the European Commission rejected, as expected, the Italian budget and stated that the ‘Excessive Debt Procedure’ (EDP) on Italy is warranted. Italian BTP’s gained on the news in a “sell the rumour, buy the news” practice. US Treasuries edged cautiously lower as risk improved across the board but paired most of the losses after lunch. Disappointing US data (Durable Goods Orders) had little impact on trading. The US yield curve shifts higher with changes around +0.8 bps. German yields also gain modest ground ranging from +0.9 bps (2-yr) to +1.4 bps (10-yr). Spreads over the German 10-yr yield decline with Italy (-11 bps) outperforming. Greece (-4 bps) and Spain (-4 bps) are also performing well.
EUR/USD trading faced conflicting drivers today. Finally the pair held a slightly upward intraday bias. A better global sentiment helped to put a floor for EUR/USD in the 1.1365/1.1380 area this morning. The EU taking first steps for an excessive debt procedure gains Italy weighed on the euro. However, Italian spreads gradually narrowed as investors saw tentative signs that the EU and Italy might look for some common ground as the procedure continues. EUR/USD reversed a temporary dip and tried to extend gains north of 1.14. US durable goods orders disappointed but were of minor importance for USD trading. Interest rate differentials between the US and Germany/EMU also didn’t change much. US markets preparing for the Thanksgiving holiday probably weighed on activity and prevented investors to place big directional bets. EUR/USD hovers in the low 1.14 area. USD/JPY tried to regain the 113 big figure, but struggles to maintain the intraday gains.
Sterling declined against a broadly stronger dollar but stabilized against the euro yesterday. Sterling trading again developed in some kind of wait-and-see pattern today. PM May returned to Brussels trying to make progress in reaching a deal on the future EU/UK relationship. At home she tries to convince hardline Brexiteers that voting down her deal in the end might result in no Brexit at all. However, there was too little concrete news to inspire investors to take GBP positions in one way or another. UK October public finance data were weak, but were also ignored. EUR/GBP is gaining a few ticks in line with EUR/USD, changing hands just north of 0.89. Cable is going nowhere in the in the 1.28 area.
News Headlines
Italy’s retail bond sale proved disappointing as the auction is nearing its end. Private demand has been less than €1bn so far compared to €4bn historically. According to the director-general of Italy’s debt management office the latest bout of volatility in yields is to blame. The auction is also rather ill-timed as the EC formally took the first steps in the “excessive deficit procedure” against Italy today.
US durable goods orders disappointed in October. The headline series declined -4.4% MoM vs. -2.6% expected due to weakness in the transportation category (aircraft). The recovery of core measures (shipments 0.3% MoM as expected) wasn’t convincing either as they are offset by downward revisions of September data.
