Markets
Trading took a cautious start in Asia and Europe this morning. Global investors stayed mostly side-lined awaiting next steps in US-China talks. US president Trump approving a bill to support the opposition protesters in Hong Kong earlier this week and the risk of retaliation from China, only made the outlook on potential next steps in this process more confusing. Asian incurred substantial losses of up to 2.0%. Hong Kong underperformed. Losses on European markets were much more limited. European equities even gradually returned into positive territory. The impact from the gyrations in equities on bonds and FX was again limited. EMU eco data were mixed. (Volatile) German retail sales disappointed again but the number of people unemployed in Germany unexpectedly declined by 16 000. The EMU November inflation (1.0% Y/Y headline, 1.3% core) remains far below the 2% ECB target, but printed slightly higher than expected. As was mostly the case of late, EMU eco data again had no noticeable impact on European yields nor on the euro. US markets reopened after the Thanksgiving holiday but will close earlier today and there were no US eco data scheduled for release. Yield changes both in the US and Germany are very small. US yields rose less than one bp. The German yield are also drifting cautiously north. 5-y and 10-y yields rise 1 bp higher. This weekend, the Social Democrats (SPD), Merkel’s coalition partner, will name a new leader. This could impact the budgetary approach of the German government in the future. 10-y intra-EMU yields spread changes vary between
-1bp (France, Netherlands) and + 2bp (Greece).
On the currency market, the euro again didn’t profit from tentatively better German labour data nor a higher EMU inflation print. On the contrary, the failure of EUR/USD to rebound off the 1.10 area, finally caused some euro longs to throw the towel. At the same time, the dollar received a better bid as US traders returned to their desks. EUR/USD is currently testing the 1.0989 support. A break would pave the way for a return to the 1.0879 correction low. Even so, price moves and volatility in the EUR/USD cross rate remain extremely small/low. A context of low volatility in theory is more supportive for the higher-yielding USD (carry). USD/JPY continues its gradual but protracted uptrend and is changing hands in the 109.60/65 area.
Sterling showed no clear directional bias today and held a tight range mainly in the 0.8520/45 area. UK money supply and credit data were mixed and had little impact on trading. The UK election campaign continues. Markets and UK politicians are now looking forward to President Trump attending a NATO summit in London next week and whether he will give his opinion on the UK election. EUR/GBP is currently trading in the 0.8530 area.
News Headlines
The Swedish economy bounced back and grew by 0.3% (Q/Q) in Q3, above market expectations of a 0.2% (Q/Q) growth. The details demonstrate an uptick in exports (+1.4%) and decent household consumption (+0.4%). The GDP numbers come in the wake of weak economic data and a gloomy first half of the year. The stronger than anticipated growth alongside softening trade strains could reassure the Riksbank in its plan to hike interest rates at the December 19 policy meeting. The Swedish krona extended its gradual rebound against the euro. EUR/SEK dropped to the 9.50 barrier.
India’s economy slowed to 4.5% (Y/Y) in Q3, down from 5% in Q2, posting its weakest pace since 2013. The details show that consumer demand, private investment and export demand continue to sputter. In recent months, Modi’s government has taken many steps, including a corporate tax cut, merged banks, etc. in a bid to boost investments and buoy growth. The weak GDP print could prompt the RBI to cut rates next week.
