Markets
Global markets started rather calm in the holiday-reduced trading week. US markets are closed on Thursday in observance of Thanksgiving with volumes expected to be reduced on (Black) Friday as well. The biggest move occurred on stock markets with European (and US) indices profiting from bullish risk sentiment in Asia. The landslide victory for Hong Kong pro-democracy candidates in local elections and news that China contemplates raising penalty’s on intellectual property theft as a compromise in trade talks contributed to the feel good mood on stock markets. Main indices gained 0.5% to 1%. Today’s eco calendar was empty apart from November German Ifo Business Sentiment. The Ifo printed bang in line with expectations and didn’t leave a trace on markets. Newly appointed Austrian central bank governor Holzmann kept close to his predecessor’s view (Nowotny) by arguing that monetary policy has reached its limits and that it’s time to pass the torch to fiscal policy. Core bonds had a small downward bias in today’s risk-on session. US Treasuries marginally underperformed German Bunds going into tonight’s start of the Treasury’s end-of-month refinancing operation. The $40bn 2-yr Note auction will be followed by a $41bn 5-yr auction tomorrow and a $32bn 7-yr Note deal on Wednesday. The long weekend in the US brought forward the traditional auction days. Changes on the US yield curve currently range between +1.2 bps (5-yr) and -0.3 bps (30-yr). The German yield curve bear steepens marginally with yields rising by up to 0.7 bps (30-yr). 10-yr yield spread changes vs Germany narrow by up to 3 bps (Greece, Portugal & Italy).
USD/JPY’s rise from 108.70 to 108.90 reflects the beneficial risk environment on FX markets. The dollar in general takes the advantage over most other majors (apart from sterling; see below). EUR/USD hovers near the lows reached after Friday’s sell-off on the back of slightly disappointing November PMI’s. The pair changes hands just north of 1.10. We expect trading to remain technical in nature and sentiment-driven given lack of a clear driver later this week. A speech by Fed Chair Powell, US consumer confidence (both tomorrow) and EC confidence data (on Thursday) are this week’s lonely highlights. Sterling shrugs of last week’s dismal PMI’s today with EUR/GBP returning from 0.86 to the mid 0.85-area. UK Conservatives maintain their lead in the polls after releasing their manifesto this weekend. It includes a quick ratification of the Brexit deal, vows not to extend of the transition period (end 2020) and pledges to shy away from tax increases.
News Headlines
The NY Fed launched a first of three term repo operations today. The one today matures on January 6, 2020 (42-day) and had $25 billion to offer but received almost double ($49.05 billion) in bids, highlighting a thirst for year-end funding. The two other term repos will be held in the coming weeks.
Mexico slipped in a recession during the first half of 2019 and stagnated in the third quarter, a downwardly revised set of data showed today. The poor reading is a blow to president Obrador, who took office in December of last year and promised to ramp up growth to 4% per year. The Mexican peso trades little changed at 19.40 to the US dollar.
The Flemish liberals accused the centre right and biggest political party N-VA of not taking responsibility in forming a federal government coalition. Six months have passed since the 2019 general elections which resulted into a fragmented political landscape and a breakthrough has yet to be made. The Flemish liberals have long opposed a government consisting of the Greens, Socialists and Liberals of both the Flemish and French speaking community but are slowly opening the door after all.
