Markets
Global core bonds move sideways today as there was only second-tier economic data to steer investors and international politics remained relatively silent. Main events of the day are planned after European close: Brexit analysis by the Bank of England followed by a Q&A session with governor Carney and comments from Fed Chair Powell. Asian equities opened today’s trading sessions with gains, while European equities opened more hesitantly to hover around opening levels throughout the day, a move copied by German Bunds. Italy’s Di Maio repeated his government is open for dialogue with the European Union, but that they cannot break promises made to voters. Italian FM Tria told the Senate in Rome that “intense dialogue” with the EU is necessary, confirming the Italian willingness to budge on its budget proposal to avoid an escalation. Tria will sit down with PM Conte and Deputy PM’s Salvini and Di Maio tonight to discuss its possibilities. US Treasuries traded flat ahead of Federal Reserve chairman Powell’s speech of tonight. Markets will pay attention to Powell’s tone on worries about potentially slowing US economic growth. The US 10-yr yield tested the 3.05% support area, but the latter is proving resilient. US yields edge cautiously higher across the curve with changes up to 0.7 bps (10-yr). German yields hardly move with changes between -0.1 bps (2-yr, 30-yr) to +0.3 bps (5-yr). Spreads over German 10-yr yields were steady.
Global investors remained in wait-and-see modus today, looking forward to a speech of Fed Chair Powell this evening. This was also visible in the intraday USD price action. European equities hovered around unchanged levels during the morning session. Interest rates and interest rate differentials also provided little guidance for the FX trading. US eco data were second tier and close to expectations. The dollar held close to recent peaks. Investors apparently don’t want to be positioned short USD going into the speech of Fed’s Powell. A positive assessment of the Fed president might support US yields and the dollar. EUR/USD hovers in a tight range in the upper half of the 1.12 big figure. USD/JPY stabilizes slightly below, but within reach of the 114 level. Powell’s speech is scheduled at CET 18.00.
Sterling succeeded somewhat of a remarkable rebound today. Over the previous days, the UK currency was fighting an uphill battle as investors stayed cautious on sterling long positions as the approval of the Brexit deal in Parliament remained highly unlikely. Today’s sterling rebound was said to be driven by headlines that labour was pondering the option of a second referendum. Also for this option the question remains whether it can secure a political majority. So for now, we doubt that it might be a strong enough basis for a sustained sterling rebound. Later during the day, the UK government published its analysis on the economic impact of Brexit under several scenario’s. However, as there was no detailed analysis of the economic consequences of the Brexit deal that will be put to the parliamentary vote at Dec 11, the impact of the document on markets was limited. EUR/GBP is trading in the 0.8830 area. Cable trades in the high 1.27 area. The BoE will publish its impact analysis on Brexit later today.
News Headlines
Ahead of next week’s OPEC+ meeting, Saudi Arabia’s energy minister said he wants stability brought back to the oil market through output cuts, but added his country “will not do it alone”. Putin said Russia is ready for cooperation with its OPEC allies, but is already satisfied with an oil price of $60/b.
A UK governmental analysis revealed UK BBP could be up to 10.7% lower over 15 years if there is no deal and migration to the island is to be fully blocked. The economic impact of the current Brexit deal was not provided. Instead, the government estimated the impact of May’s rejected Chequers plan at a 0.6% GDP loss over 15 years, or 2.5% without any EU migration.
