Markets
Core bonds lost ground today. Global markets calmed down after yesterday’s equity sell-off. Asian markets continued yesterday’s intraday risk rebound on US markets. The German Bund opened higher but edged gradually lower throughout the day. US Treasuries opened in a sideway manner. The EU only printed secondary eco data, leaving the investor focus on the OPEC+ negotiations in Vienna and on the US payrolls. Both came around the same time. OPEC+ agreed to cut oil production by 1.2 million barrels p/day. The price for one barrel cude (Brent) jumped more than 5%. US labour report printed under expectations, but remains solid nonetheless. The data allows the Fed to strike a softer tone on interest rate hikes, while the economy and labour market remains strong. Both UST’s and German Bunds first spiked higher, but paired those gains almost immediately to gradually edge lower. In the end, German Bunds underperformed US Treasuries. Both the German and the US yield curve move north. German yield changes stretch from +2.7 bps (2-yr) to +3.2 bps (10-yr) while the US yield curve changes range from +0.1 bp (5-yr) to +1.7 bps (30-yr). Italy and the European Commission again repeated that both parties expect a budget agreement. Italian 10-yr yield spread over Germany tightened 10 bps to 285 bps. Spreads in other peripheral countries tightened as well.
Today, three factors were earmarked as potential movers for global (FX/USD) trading: risk sentiment(equities), the OPEC decision on production cuts and the US payrolls. The sell-off of risky assets slowed today. In line with recent price action, risk-sentiment wasn’t an unequivocal driver for USD trading. Despite a more constructive risk sentiment, EUR/USD held an extremely tight sideways range in the 1.1360/85 area. US job growth was slightly below consensus. Wage growth and the unemployment rate were little changed as expected. The dollar lost temporary a few ticks upon the release of the payrolls report, but markets soon concluded that the report won’t change the Fed assessment going into the December policy meeting. EUR/USD briefly touched offers north of 1.14 but soon returned to familiar territory just below the 1.14 mark. More or less at the time of the payrolls publication, OPEC announced to have reached a deal on production cuts. LT yields rose marginally, but the oil deal nor the payrolls were able to provide any clear direction for USD trading. EUR/USD is currently changing hands near 1.14. USD/JPY hovers in the upper part of the 112 big figure and also shows little of a directional bias.
In the UK the political debate preceding next week’s Brexit vote continued today. As was often the case of late, several potential ‘solutions’ to unlock the political stalemate were aired, including some May allies proposing a delay of the vote. However, for now, none of the proposals are seen as contributing to a clear workable outcome of the Brexit procedure. In technical trade, sterling drifted cautiously higher off the 0.89 mark. Investors stay cautions on sterling long exposure going into the weekend.
News Headlines
The US payrolls fell somewhat below expectations as 155 000 new jobs were created in Nov. vs. 198 000 expected. Unemployment and the participation rate remained stable at 3.7% and 62.9%. Wages grew 0.2% MoM (vs. 0.3% exp.) while Oct. wage growth was revised downwardly to 0.1%. Earnings remained stable on a yearly basis at 3.1% YoY.
The Canadian job report came in stronger than expected as 94 100 new jobs were created (a mere 10 000 was expected), 89 900 of which full time. The unemployment rate dropped from 5.8% to 5.6% while the participation rate increased from 65.2% to 65.4%. The loonie jumped a big fig, from USD/CAD 1.34 to slightly below 1.33.
Today’s Opec meeting ended with an agreement despite a pessimistic tone upfront. The most important oil producing countries agree a cut of 1.2m barrels per day to support oil prices. Brent crude jumps more than 5% to currently trade around $63/b.
