Markets
Apart from some US housing data and industrial production, both exceeding expectations, there was little news to provide impetus to trading. Boeing halting its 737 Max production, potentially affecting the US growth figures going forward, captured some headlines but had no noticeable impact. Most newswires also picked up a sales-growth warning by personal goods maker and economic bellwether Unilever. But investors mainly mulled the recent partial trade deal between the US and China. The immediate risk of a further escalation in the trade war is currently off the table. But there are still details lacking as to when the US will roll back tariffs and how much. Furthermore, the current deal by no means marks the end of the broader conflict that also entails more profound issues such as protection of intellectual property. It merely kicks the can down the road. Against that background and with (equity) markets hovering near recent (EU) or outright all-time (US) highs, markets decided to take a more guarded/neutral stance. US yield tread water, while the German yield curve bull flattens marginally with yield declining 2 bps at the long end. Spreads vs. the German 10y yield are virtually unchanged. Similar directionless trading is observed on FX markets. EUR/USD oscillating near opening levels with the latest downleg inspired by the slightly better than expected US data. USD/JPY is going nowhere in the 109.5/6 area.
Sterling continued to lose ground. Under the current brexitdeal, the transition phase which kicks in after Brexit happens (on January 31), runs until December 2020. This implies the UK and EU have about 11 months to forge a Canadian style free trade agreement. That’s widely considered a near impossible deadline. Prime minister Johnson pledges not to prolong that period nevertheless. He will propose a bill that will ban ministers from extending it even if there is no new trade relationship agreed upon. By doing so, Johnson wants to keep pressure on the EU during the trade talks. For markets however, his promise means that after weeks of relative calm, a no-deal Brexit comes lurking again. The pound slipped from the EUR/GBP 0.835 towards the 0.85 resistance area. The currency pair is currently trading in the 0.847’s. Cable retreated from 1.327 to 1.315 at the time of writing. A solid labour report (October) after two dire months wasn’t able to cheer up sterling bulls.
News Headlines
UK labour market in the three months to October beat forecast. Employment increased by 24 000 while consensus expected a 14 000 decline, taking the employment rate to a record 76.2%. The unemployment rate stabilized at 3.8%, matching multidecade lows. Wages excluding bonuses rose by 3.5% (from 3.6% vs 3.4% consensus), positively contributing to households’ disposable income. On a downbeat note, vacancies declined by 20k to 794k, the lowest level since 2017.
The Hungarian central bank kept its deposit rate and base rate unchanged, respectively at -0.05% and 0.9%. The NBH raised the 2020 inflation forecast from 3.4% to 3.5% while leaving the 2019 and 2021 projections unchanged at 3.3%. The council decided to keep the level of HUF liquidity to be crowded out from the central bank instruments that pay the base rate unchanged at a minimum of HUF 300bn-500bn. EUR/HUF holds below the 330 mark.
US eco data beat forecasts. Building permits rose by 1.4% M/M in November, reaching the highest level since 2007 (1482k) with lower mortgage rates remaining supportive. US housing starts rose by 3.2% M/M to 1365k, the second to highest since 2007. Industrial and manufacturing production both rose by 1.1% in November with the capacity utilization rate increasing from 76.6% to 77.3%.
