Markets
After the recent geopolitical jitters, calm returned to markets today. There were some Iran/US retaliation headlines this morning but the issue is nothing more than a storm in a teacup to markets at the moment. Oil prices retreated. European bourses opened in the green after a strong Asian session. The upbeat sentiment did fade during the day though with maybe some nervousness kicking in ahead of key data later today/this week. Core bond yields choose little direction with US rates oscillating near opening levels within a narrow range. Daily changes are negligible as is the case in Germany. December inflation for the EMU failed to provide any impetus as market expectations were spot on. Headline inflation accelerated to 0.3% m/m (1.3% y/y) after a month of a -0.3% price decrease. Core measures were unchanged vs. November, coming in at 1.3% y/y. Portugal announced a new 10y bond mandate, expected to be launched tomorrow. Spanish Socialist leader Sanchéz received enough backing for a new term as prime minister, leading over a Socialist-Podemos coalition. Peripheral spreads were stable though. With respect to currency markets, we saw the euro struggling today as sentiment gradually turned less buoyant. EUR/USD held a downward path. The decisive move south took place during first US dealings. At 1.1150 the couple is currently testing intermediate support. USD/JPY is going nowhere in the 108.4/5 area while EUR/JPY dipped below 121.
The UK’s Debt Management Office updated its auction calendar this morning and raised planned gilt sales with £14bn for the current fiscal year. UK yields jumped 4 to 5 bpn higher at the opening and sterling, initially hovering sideways, followed in lockstep, benefitting from increased interest rate support. The upleg in both yields and the currency proved only temporary though. EUR/GBP rebounded from an intraday low around 0.847 and reversed losses completely by noon. There’s no clear explanation however. If anything, the UK House of Commons debating Johnson’s brexitdeal later today might be a reason for investor cautiousness. Anyway, EUR/GBP is currently trading unchanged at 0.85. Early cable gains also got erased rather soon with GBP/USD changing hands around 1.312.
News Headlines
Polish inflation accelerated more than expected in December, by 0.8 M/M and 3.4% Y/Y. The latter is the highest reading since June 2012 and approaches the upper end of the 1% tolerance band around the central bank’s 2.5% inflation target. The NBP meets tomorrow, but inflation hawks remain outnumbered for now. The Polish swap curve bear steepened with yields up to 12 bps higher. The zloty failed to profit. EUR/PLN rises towards 4.25.
Spanish Socialist leader Sanchez will lead the country’s first coalition government after narrowly getting backing from parliament in a 2nd investiture vote. 167 lawmakers backed the Socialists-Podemos minority government while 165 voted against. The abstention of 18 MP’s, including from the Catalan pro-independence ERC, was crucial to get Sanchez sworn in. Spanish assets didn’t react.
The UK’s debt management office (DMO) adjusted its Gilt sales programme for 2019-2020. Planned gilt sales are rising by £14bn to £136.8bn while Treasury bill sales increase by £2bn. The increase reflects the latest estimate of the government’s financing requirement for the remainder of 2019-20.
The US non-manufacturing ISM printed slightly stronger than expected rising from 53.9 to 55, showing a more upbeat picture compared to the manufacturing measure published last week. The market expected a more modest rise to 54.5. The activity sub-index rose to 57.2 from 51.6, but new orders eased to 54.9 from 57.1. Prices remained unchanged at a solid 58.5.
