Rates: How long will risk rebound last?
Traded volumes are thinned by US Thanksgiving. Italian BTP’s are set to extend their short term relief rally as Italian media suggest that 5SM leader Di Maio is also open to make some budgetary modifications in parliament. This could extend yesterday’s risk rebound and weigh on the Bund.
Currencies: Dollar stabilizes as markets ponder future Fed rate hike path
Global equity markets and EUR/USD entered calmer waters yesterday. Investors still question how much interest rate support the dollar will maintain next year while Italy and Brexit remain sources of uncertainty for the euro. More technical USD trading might be on the cards today with US markets closed for Thanksgiving
The Sunrise Headlines
- US equities rebounded yesterday after the selloff of recent days. Technology shares outperformed (Nasdaq +0.92%). US markets are closed today (Thanksgiving). Asian stock markets opened mixed with China underperforming.
- UK PM May told Spain’s PM Sanchez she wants a Brexit deal for the whole UK, incl. Gibraltar. Spain warned it could veto the deal. May returns to Brussels on Saturday, a day before EU leaders hold a special summit to sign off on the deal.
- Canada is offering tax breaks worth $10.5 billion over six years, the biggest support for businesses since PM Trudeau took power. The changes are aimed to support competitiveness after it was affected by Trump’s tax reforms.
- The Greek central bank will shift tax credits for five of its biggest lenders to a special purpose vehicle to issue bonds and use the proceeds to acquire €42bn of bad debt in an attempt to restore confidence in the Greek banking system.
- Luigi Di Maio, Italy’s Deputy PM, reiterates Matteo Salvini’s comments of yesterday that small “modificiation” to the 2019 Italian budget proposal are possible. The euro gained little ground on the news.
- Japan’s consumer inflation remains stable in October. Headline inflation printed at 1.4%. The BoJ’s key inflation gauge that excludes fresh food prices but not energy prices, remained stable at 1.0%, half of the BOJ target of 2%.
- Today’s economic calendar is empty in the US due to Thanksgiving day. In the EMU, consumer confidence for November is printed. An avalanche of ECB members speak today, including Weidmann, Knot and Visco.
Currencies: Dollar Stabilizes As Markets Ponder Future Fed Rate Hike Path
USD stabilizes as risk-off correction slows
Markets entered calmer waters yesterday after Tuesday’s risk-off move. EUR/USD developed an intraday bottoming pattern. Italy stays a source of uncertainty for the euro as the EC took first steps toward an Excessive Debt Procedure (EDP) against the country. However, markets saw signs that the EU and Italy were still on speaking terms (Italian-German spread narrowed). US durable orders disappointed, but with little impact on trading. US/core yields hardly moved despite the risk rebound. In the end, this also hampered a clear directional intraday trend in the US dollar. EUR/USD closed at 1.1384 (from 1.1370). USD/JPY finished at 113.06 (from 112.77). Overnight, Asian equities are trading mixed with China underperforming. Japan outperforms. Japan October inflation (ex fresh food) printed unchanged at 1.0%, as expected. USD/JPY is holding a tight range near the 113 mark. EUR/USD is gaining a few ticks, nearing the 1.14 level. Today, the calendar is light. Trading conditions will be thin with US markets closed for Thanksgiving. In EMU, EC consumer confidence is expected to ease from -2.7 to -3.0. The Minutes of the ECB October meeting are a wildcard and so are speeches from ECB members. Headlines on Italy are always possible. The EU and the UK are addressing some ‘last issues’, necessary for a Brexit deal to be signed at a summit on Sunday. In absence of the US, technical trading in EUR/USD is likely unless something unexpected happens regarding Italy or in the Brexit process. We had a neutral bias on EUR/USD. The USD lost momentum as investors ponder whether recent volatility might cause the Fed to slow policy normalisation next year. Still, we think it’s too early for a sustained market repositioning away from the USD. The news from Europe is mixed at best. We see this week’s price action confirming our working hypothesis that EUR/USD 1.15/1.1621 resistance won’t give away that easily.
Sterling lost a few ticks against the euro and the dollar yesterday. EUR/GBP settled slightly north of 0.89. Markets await the next steps in the Brexit sage. The EU and UK are finalizing a Brexit deal that is scheduled to be approved this weekend. We don’t expect meaningful sterling gains ahead of the weekend. A last-minute failure is always possible and markets will closely look at the political scene in London. The approval of a deal in the UK Parliament still looks an almost insurmountable hurdle. We stay cautious on sterling as long as uncertainty on final vote persists.
USD (trade-weighted) stabilizes as market ponders Fed rate hike intentions
