Markets
European stock markets flash green today. Main indices gain up to 1.5%. The German Dax breaches 13 000 for the first time since June 2018. The Euro Stoxx 50 now clearly left the 3600 area behind. 3708 (2017 high) is final resistance ahead of the post-crisis high (3836 in 2015). The positive vibes spill from WS last Friday when both the S&P 500 and Nasdaq managed fresh all-time highs (broken again today). Stock markets thrive on the one hand on trade optimism. China reported a phase one trade deal in principle with President Trump and President Xi Jinping still aiming to sign it off despite the cancellation of the Santiago APEC-Summit. More positive trade news came over the weekend from US Trade Representative Ross who said the US isn’t expected to raise tariffs on automobiles. The headlines triggered a great sigh of relief in the EU, Japan and South Korea. The second part of Friday’s risk rally originated in US eco data with payrolls holding firm and the manufacturing ISM showing early signs of improvement. The data came after EMU PMI’s and GDP numbers showed a similar picture of moderation in the decline. From a market point of view, this leaves a trading vacuum for the remainder of the month. There are no ECB/Fed meetings and important EMU/US eco data (bar non-manufacturing ISM tomorrow) aren’t due until the end of the month (November PMI’s). With Brexit headlines absent for the first time in three years’ time, that leaves the US-Sino trade relationship as only thing to go with. We therefore expected the risk mood to remain rather positive, at least until the official signing off somewhat later this month. Translating this mood to rate markets implies declining core bonds. That’s indeed the case today with US Treasuries heavily underperforming German Bunds. The US yield curve bear steepens with yields rising by 3.6 bps (2-yr) to 7.4 bps (30-yr). The German yield curve shifts in similar fashion, gaining 0.4 bps (2-yr) to 3.3 bps (30-yr). 10-yr yield spreads vs Germany narrowed by up to 2 bps. The impact on FX markets was rather subdued. The main “victim” was the Japanese yen. USD/JPY rose from 108.18 to 108.50. EUR/USD approached the 1.1179 resistance area, but a real test didn’t occur. EUR/USD currently changes hands around 1.1150. EUR/GBP trades listless around 0.8840.
News Headlines
Turkey’s inflation rate fell to its lowest level in almost three years in October, a low watermark in a recent downward trend. Consumer prices grew 8.6% from a year earlier, compared to 9.3% in September. The inflation turnaround was helped by a more stable lira and the slowdown in economic growth that has followed the 2018 currency crash. However, inflation is expected to pick up again with the Turkish central bank setting its inflation forecast to 12%.
British construction activity extended its longest contraction since 2013 in October as Brexit woes and a weak economic backdrop held back growth. HIS Markit’s index of building activity rose to 44.2, from 43.3 in September, but remains far below the 50 threshold that indicates expansion. Construction companies are positioning for an extended soft patch for project starts. UK’s Services PMI will be published tomorrow and are expected to reaffirm the downbeat picture of this year’s growth which will likely have the BoE dilute its hiking bias further in its monetary policy decision on Thursday.
India decided to pull out of the RPEC trade pact covering much of Asia. 15 other Asia-Pacific nations are now pressing ahead to sign what will be the world’s largest trade deal next year. India’s prime minister cites that the pact would undermine an already faltering economy and have adverse societal effects.
