Markets
Global core bonds are trading mixed today. German Bunds paired gains throughout the day and US Treasuries traded flat up until Fed VP Clarida’s speech. US President Trump ended yesterday’s uplift in risk sentiment on financial markets by signaling that he will likely push forward with plans to increase tariffs on $200 billion of Chinese goods if there’s no progress in US-China trade talks at the G20 summit in Argentina later this week. European equities opened volatile after a senior Chinese official said Trump and Xi agreed to reach a mutually beneficial agreement. German Bunds opened higher but gradually paired most of those gains throughout the day. The Italian government reiterated its willingness to lower the 2019 budget deficit as it is not worthwhile to “go to war” with the EU. By delaying the citizens’ income, possibly to the summer of 2019, it wants to lower the deficit to 2.2%. Italian BTP’s initially climbed on the news, but paired those gains. US Treasuries moved sideways today but eventually moved lower after Fed’s vice chairman Clarida’s speech. He repeated that the US economy is robust and the labour market remains healthy. He expects the expansion to continue in 2019, countering growing concerns of a slowdown. Clarida’s comments weighed on US Treasuries. The US yield curve edged slightly higher with changes ranging from +0.5 bps (2-yr) to +1.5 bps (10-yr). German yields declined with changes from -0.8 bps (30-yr) to -1.3 bps (5-yr).
The dollar held strong yesterday, given the improvement in global risk sentiment. Global (equity) markets didn’t find a clear directional bias today as US president Trump and Chinese officials gave different signals on the progress in the US-Sino trade talks going into this week’s G20 meeting. Fed’s vice-chair Clarida held a cautiously positive tone, supporting the process of gradual Fed normalization. However his comments had little impact on the dollar. The dollar in general and EUR/USD in particular show no clear trend. EUR/USD is hovering in the lower half of the 1.13 big figure. USD/JPY remains well bid even as risk sentiment turned less buoyant. The pair is trading near 113.60.
GBP-investors are closely monitoring UK PM May’s campaign to broker the Brexit deal to the UK parliament and even directly to UK citizens. Focus turned to her Northern Irish audience as the UK PM visited Belfast. There were few indications that the DUP, which is supporting May’s government, will approve the deal at the Dec 11 vote in Parliament. The DUP objections to the deal are not new. However, the party explicitly reiterating its call for PM to drop the backstop clause, only illustrated that it will be extremely difficult for PM May to avoid a chaotic outcome of the Brexit procedure. Sterling dropped lower this morning as the first headlines on Northern Ireland hit the screens. EUR/GBP jumped to the 0.8885 area. Sterling selling slowed later in the session. Even so, the political debate on Brexit again didn’t provide any reason to turn more positive on the UK currency. CBI November retail data were stronger than expected, but had little impact on sterling. EUR/GBP is trading in the 0.8870 area. Cable dropped temporary below 1.2750, but has currently rebounded to the 1.2775 area.
News Headlines
The Fed’s monetary policy is set to enter a more unpredictable phase. Rate setting going forward will be based more on economic data and less on forecasts of how the economy is expected to develop in the future. 2019 also means the end of quarterly rate hikes since all Fed meetings will be live, i.e. accompanied by a press conference.
Sweden is one important step closer towards a new government since the country faced a political impasse following the elections of September 9. The Center Party leader Annie Loof told she would accept the Social Democrat Stefan Lofven as prime minister if her party’s demand, including lower taxes, were met.
