Markets
Global core bonds are mixed today with US Treasuries outperforming German Bunds. Risk sentiment remained fragile, with investors still disappointed by the Fed’s decision on Wednesday and the ongoing political deadlock in the US. Trump is still threatening to shut down the government (partially) as he is putting his foot down on federal funding for a wall on the US/Mexican border. The risk-off modus supported US Treasuries, pushing them (modestly) higher. US economic data slightly disappointed but had little impact on US bonds. The US yield curve bull flattened with changes varying between -0.3 bps (2-yr) to -3.4 bps (30-yr). European equities opened lower this morning, but recovered partly throughout the day. The German Bund stays close to opening levels. The German yield curve steepens, with changes in the range of -0.3 bps (2-yr) to +2.2 bps (30-yr). Italian BTP’s dropped despite the 2019 budget taking its final form and as the coalition said to have enough votes in both houses to push it through parliament today. However, BTP’s were able to pair some of the losses throughout the day keeping the Italian/German 10-yr yield spread remaining close to its recent low.
Yesterday, the dollar reversed a post-Fed uptick as uncertainty on the Fed policy going forward, the risk of a government shutdown and persistent uncertainty on the US-China trade relations weighed on the US currency. Today, the dollar re-found its composure. An early EUR/USD upside test ran into resistance ahead of the 1.1486/1.15 resistance area. China indicating renewed policy stimulation was a USD supportive. Risk-off selling in EUR/JPY and USD/JPY probably also filtered through into the EUR/USD cross rate. During the US trading session, US data were mixed. US Q3 GDP was revised marginally lower to 3.4% QoQa. November durable goods orders were rather soft, but October data were upwardly revised. Market impact on USD trading was limited. Risk sentiment improved slightly, but Interest rate differentials between the US and German still narrowed slightly, tempering further USD gains. EUR/USD still trades in the red on a daily basis (1.1420 area). USD/JPY stabilized in the lower half of the 111 big figure.
Today, sterling rebounded after substantial losses earlier this week. UK Q3 growth was confirmed at 0.6% Q/Q and 3.5% Y/Y, but business investment contracted for the third consecutive quarter. The Q3 current account deficit was also bigger than expected at £26.5bn. November public sector borrowing was better than expected. Brexit rumours/headlines suggested that the UK government is pondering the options in case May’s Brexit deal gets rejected in January. These options might include a second referendum or new elections which, in the end, might reduce chances for a disorderly no deal Brexit. The EUR/USD correction also weighed on the EUR/GBP cross rate. The pair dropped back to the low 0.90 area (currently near 0.9025). Cable is trading little changed in the mid 1.26 area.
