Markets
Over the previous days, the (eco) news flow was already quite thin, but investor hope on a partial trade agreement between the US and China supported some kind of reflation trade. This trade affected different markets in a different way, with equites profiting most. The rise in core yields and even more in EUR/USD or USD/JPY was far less outspoken, if any. However, this risk rally did run into resistance today. There was no obvious trigger for this stall. Investors probably shifted to a more neutral/cautious positioning ahead of tomorrow’s Fed policy decision and key US eco (payrolls and ISM) later this week. Today, US house prices eased slightly more than expected. US consumer confidence also painted a rather unconvincing picture as the expectations component declined. The impact on the bond markets was limited. US yields have currently changed less than one basis point compared to yesterday’s close. German yields are little changed at the short end of the curve. Longer yields declined with the 30-y outperforming (-2.5 bp). 10-y intra-EMU spreads versus Germany are little changed with Greece slightly underperforming (+3bp).
A less buoyant risk sentiment this morning temporary pressured both on EUR/USD and on USD/JPY. However, both ‘corrections’ didn’t go far. The (trade-weighted) dollar couldn’t hold on to initial gains as markets ponder the chances for a hawkish Fed rate cut tomorrow. EUR/USD reversed initial weakness as US traders joined the fray. The UK Labour party supporting the scenario of December elections maybe was a marginal EUR/USD supportive too. EUR/USD currently trades again in the 1.11 area. USD/JPY still struggles to hold the 109 area.
Today, UK PM Boris Johnson finally received the support of the opposition Labour party for snap elections in the Dec 09-12 period. However, the vote in Parliament has still to take place later today and amendments to the election bill still might complicate the procedure. Sterling reacted in a very guarded way to the concrete prospect of parliamentary elections. On the one hand, an elections raises the chance that the deadlock in Parliament might be solved and that Brexit might be solved in one way or another. On the other hand, the outcome of the de facto Brexit referendum remains unclear. Sterling trades marginally stronger in a daily perspective. EUR/GBP is changing hands near 0.8620. Cable hovers near 1.2875.
News Headlines
US Consumer confidence stabilized near an upwardly revised September outcome (125.9 from 126.3) while consensus expected a rebound. Details showed an improvement in the present situation index (172.3 from 170.6) while forward looking expectations deteriorated (94.9 from 96.8) to their second lowest level since the end of 2016.
US S&P Corelogic Case-Shiller house prices (20 city index) recorded only their second monthly decline since early 2012 in August (-0.16 M/M). The Y/Y pace stabilized at 2.03%, the slowest since August 2012. Tepid wage gains are limiting buyer enthusiasm despite low mortgage rates. A shortage of affordable inventory up until now prevented a more rapid moderation of the US real estate market. September data (pending home sales) suggest no reason for panic yet. The 6.3% Y/Y increase in pending home sales is the biggest gains since August 2015. Contract signings to purchase previously owned US homes rose by 1.5% on a monthly basis.
ECB Governing Council Member de Cos warns for signs that the economic deterioration is spreading from manufacturing to services. He specifically mentioned the gradual decline in consumer confidence which could mean a more modest expansion of private consumption, the back bone of EMU growth. Bundesbank President warned that pursuing “green QE” as suggested by next ECB Chair Lagarde risks creating conflicts of interests. Monetary policy makers don’t have the democratic legitimacy to pursue environmental goals, he argues.
