Markets
Global economic/market news was rather scant today. Although we definitely do not ignore his comments, markets didn’t really pick up US Trade Representative Lighthizer’s threat to the EU and it’s “very unbalanced” trade with the US yesterday. The German Ifo-indicator surprised on the upside, for once, shrugging off a mixed to weaker-than-expected (manufacturing) PMI on Monday. However, the scale of surprise was insufficient to really propel markets into risk-on mode. Instead we witnessed more of the same, rather directionless trading. US bond yields add about 1 bps across the curve. The German Bund marginally underperforms with the yield curve bear steepening as yields advance 1 bp (5-yr) to 2 bps (30-yr). Peripheral spread changes were marginal with the exception of Greece (- 9 bps) on news that the ECB might lift the cap introduced in 2015 on the amount of sovereign bonds Greek banks are allowed to hold. EUR/USD’s downtrend today was only briefly interrupted by the slightly better German figures. The currency pair started on soft footing already at the very start of the trading day. The second downleg occurred at the time of Coeuré’s speech in which the outgoing ECB board member suggested the central bank could/should shift to communicating a tolerance band for inflation as part of the inflation strategy review. He added that the ECB is able to ease policy even further with the current tools. Overall dollar strength also added to the decline. EUR/USD is currently trading at 1.112, down from 1.115. USD/JPY completely reversed an intraday loss with the move starting around noon and is changing hands around 109.6 at the time of writing.
UK inflation data (see headline below) were rather close to consensus and had no impact on sterling trading whatsoever. As a matter of fact, nothing today actually had. After receiving a blow from Johnson’s bold move to legally block an extension to the post-Brexit transition period on Monday and yesterday, the British pound was a sea of calm today. EUR/GBP found a new, at least short term, equilibrium around 0.85 as markets await the next steps in Brexit (with the current deal probably being rubberstamped this Friday). Cable, if anything, shows a little more direction. The currency pair declined marginally from 1.313 to 1.307 at the time of writing, mainly due to dollar strength.
News Headlines
German business sentiment as measured by the IFO business climate survey rose more than expected in December, rising from 95.1 to 96.3. The consensus expected 95.5. Both the current conditions sub-index and expectations beat market expectations. According to IFO, the report suggests 0.2% German growth in the fourth quarter. Still, the German industry remains in recession and IFO only expects a very slow recovery.
Both UK headline CPI inflation (1.5% Y/Y) and core inflation (1.7% Y/Y) were reported unchanged in November from the previous month. The data as expected, stayed below the 2% BoE target. The Bank announces its policy decision tomorrow. The report probably won’t change the BoE’s view in a profound way as the bank will try to assess the impact on of recent political developments on growth in 2020. PPI output prices continue to drift further south (0.5% Y/Y).
Canadian inflation in November rose from 1.9% to 2.2%. The rise was expected. Core inflation (trim Y/Y) also rose from 2.1% to 2.2%. Goods inflation printed at 2.3% Y/Y. The data confirm the view of the BoC of inflation holding near the policy target of 2%. A temporary uptick in the coming months was also part of the BoC scenario. The Canadian dollar (USD/CAD 1.3130 area) gained modest ground after the release.
