Markets
Global core bonds lost ground today. The equity sell-off of last week continued, pushing Asian and European equities lower this morning. Risk-off sentiment ruled markets, as concerns on a slowing global growth and the ongoing (Huawei) spat between the US and China weighed on risk appetite. Both US Treasuries and German Bunds opened higher, but the move north was short-lived. Risk sentiment ameliorated, amongst others, with better than expected foreign trade data in Germany. German Bunds turned south. In the US, there was no data to steer trading, but equity markets opened lower anyway. Both the US and German yield curve edged higher. US yield changes range from -1.3 bps (30-yr) to +2.0 bps (5-yr). German yield changes vary between -2.1 bps (30-yr) to 3.2 bps (5-yr). Italian BTP’s continued the upward trend of last month and moved higher again as industrial production beat expectations. Industrial production (MoM) grew 0.1% in October, while markets expected a decline of 0.3%. If the meeting between Italian PM Conte and European Commission head Jean-Claude Juncker on Wednesday yields a positive outcome, Italian BTP’s could receive some more tailwind.
The dollar took a weak start in Asia this morning. Friday’s US equity sell-off, interest rate markets pricing even less Fed tightening next year and the political tensions between China and the US all weighed on investors’ sentiment. At least for now, this kind of uncertainty doesn’t help the dollar much. At the start of European dealings, the single currency received some additional support from better than expected German foreign trade data. EUR/USD briefly touched the 1.1440 area, but gains could not be sustained later in the session. In technical trade, the US currency reversed a big part of the losses from the Asian session. There was little economic news to guide euro or USD trading. Growing uncertainty on the UK Brexit vote maybe also prevented further euro gains. Interest rate differentials between the US and Germany were mixed across the curve and no decisive factor for EUR/USD trading. EUR/USD traders currently in the 1.14 area. USD/JPY showed quite a solid intraday rebound as core bond yields bottomed and as sentiment on risk turned less negative. The pair is changing hands in the 113 area.
Talks of the past few days has been whether UK’s Prime Minister May should delay the scheduled Parliamentary vote on the brexit deal. While May initially rejected all kind of rumours, she cracked under the pressure one day before this crucial moment. The move came as it was increasingly obvious the deal would have been voted down by both members of the opposition as MP’s of her own party/government. The risk of a vote of no confidence afterwards isn’t one May is willing to take. Instead, the PM is heading to Brussels on Thursday to seek a better deal on the Irish backstop. Possibly in vain, as the EU Commission already said it won’t re-negotiate the deal. The PM is scheduled to address the House of Commons later today. These latest developments illustrate the difficult road ahead and rattled sterling investors who couldn’t find comfort in the mixed production data either. EUR/GBP is trading above the 0.90-handle (0.9035 at the time of writing) for the first time since early September. Cable slid to the June 2017 low at around 1.2615.
News Headlines
Norway’s headline inflation increased in Nov. with 0.5% (MoM) and 3.5% (YoY), up from resp. -0.2% and 3.1% in Oct. and beating market expectations of resp. 0.1% and 3.1%. The uptick supports the Norges Bank to raise rates in Q1 of next year, after it raised its rates in September for the first time in seven years. The krone couldn’t’ profit.
Urjit Patel has resigned his post as governor of the Reserve Bank of India, following persistent disagreement over the bank’s independence with India PM Narendra Modi’s and his government. Mr Patel was in position since September 2016, when he replaced Raghuram Rajan. The Indian rupee loses ground on the news.
