Markets
The week ended the way it started: dull. There was no news flow to guide trading and the few data scheduled for today could barely match expectations more. Germany’s Ifo indicator to a large extent confirmed yesterday’s PMI’s. All three series (headline, current assessment and expectations) stabilised near recent low levels, respectively at 94.6, 91.5 and 97.8. Needless to say, markets shrugged and carried on. Looking at equity markets, one would expect a cautious sentiment going into the weekend. However, the red-colored stocks do not add up with rising core bond yields. The German yield curve bear steepens as rates advance 0.7 bps (2-yr) to 3.5 bps (30-yr). Peripheral spreads narrow. Greece (-4 bps) outperforms. UST’s outperform Bunds today with yields increasing 1 bps across the curve. Similarly, there’s no clear conclusion to be drawn for FX markets. EUR/USD reversed its initial upward bias around noon and is currently testing the 1.11 minor support area. USD/JPY is printing some marginal declines and is headed towards 108.50. We don’t read too much in today’s counterintuitive trading patterns. Volumes are relatively low. That might have a thing or two to do with a busy next week in which Brexit, the Fed and a slew of important economic data (US and EMU GDP and inflation numbers, payrolls, ISM …) take center stage.
Brexit turned a bit to the background over the past couple of days as PM Johnson awaits the decision by the EU on another delay. In the meantime, he called for early elections on December 12 again yesterday. His proposal will be put to a vote on Monday but was already rebuffed by Labour’s Corbyn. The Liberals are also unwilling to go along with Johnson as long as there’s no certainty about an extension, making the two-third parliamentary majority required to trigger elections, even more unlikely. Regarding that Brexit delay, EU diplomats said they will defer the decision until after Monday’s vote. It also became clear that the European bloc is ready to grant such a delay but there’s no unanimity on the length of it. France does not agree with postponing Brexit until January 31, instead pushing for November 30 to keep the pressure on UK’s parliament to back the current deal. The pound sterling extended yesterday’s losses going into the weekend. The downward move against the euro and the dollar remains fairly limited and technical in nature. EUR/GBP settled higher into the 0.866 area. Cable is nearing 1.28.
News Headlines
The Russian central bank joins the easing wave and slashed its key interest rate with 0.50% to 6.5% amid persistently slowing inflation, which is expected to drop below its 4% target, and sluggish economic growth. The CBR is keeping the door open to further rate cuts to boost its economy. USD/RUB and Russian government bonds reacted unfazed by prospects for more.
The ECB and PBOC have agreed to extend the bilateral currency swap agreement, that was established in 2013, for another three years. The swap arrangement has a maximum size of CNY 350 bln and EUR 45 bln. From a European perspective, the agreement serves as a backstop facility to address potential sudden and temporary liquidity shortages in euro area banks due to disruptions in the CNY market.
Norway’s sovereign wealth fund, the world’s largest, has hit a record of USD 1 trillion as booming global stock markets and an upbeat euro have boosted the value of the fund’s assets. Norway has grown increasingly reliant on the fund for public spending. The country’s new government, under Erna Solberg, will oversee a planned overhaul regarding the fund’s governance and strategy.
