Markets
Yesterday’s “eleventh hour demands” (UK sources; denied by EU diplomats) by French president Macron on fisheries and the future UK state-aid regime, resonated today in an official warning by the country’s European affairs minister Beaune. He said that “if a good agreement cannot be reached, we will oppose it. Each country has a veto right”. The French warning adds yet another layer to complicated EU/UK trade talks. The UK is rumoured to be ready to sign off on a deal next Monday or Tuesday, but several EU countries want to see the complete agreement before letting EU Barnier claim victory. Apart from fisheries and UK state-aid, both parties remain at odds on the level playing field of norms and regulations. Both parties hope to cling a deal ahead of next week’s EU Summit (Dec 9-11) which would enable EU and national parliaments to give necessary approval before the transition period ends (Dec 31st). If not, a “hard” brexit is the by default scenario with EU/UK trade relegated to less competitive WTO standards. Sterling remarkably held its nerve. Sterling even outperforms other majors with the downmove in EUR/GBP (technically) accelerating after the return below EUR/GBP 0.90.
Trading on major FI and FX markets was calm for most of the European session. The single currency lost a few ticks after Bloomberg cited people close the ECB who said that the central bank will next week announce a 12-month extension of its Pandemic Emergency Purchase Programme until June 2022. General consensus currently takes into account only a 6-month prolongment. PEPP would also be increased in size with €500 bn (to €1.85tn) being the most common whisper number. US November payrolls were today’s main dish. Headline job growth (245k) disappointed (460k consensus). Transportation and warehousing, health care and business services added jobs while declines in retail and government jobs drove the headline number down. Underlying trends show a new increase (+385k to 3.9mio) of long-term unemployed which now represent nearly 37% of the total unemployed. The decline in unemployment rate was mainly because of the wrong reason. The labour force participation rate fell from 61.7% to 61.5%. The market reaction on disappointing US payrolls was striking and can’t hide underlying sentiment (weaker core bonds, soft dollar, stronger stocks). Core bonds spiked higher, but immediately reversed course. What can’t go up, must come down. US Treasuries significantly underperformed German Bunds. The narrative sounds that the ill job market adds pressure on Democrats and Republicans to set aside differences and speed up agreeing on a new fiscal stimulus package. Th US yield curve bear steepens with yields adding 0.4 bps (2-yr) to 6.5 bps (30-yr). The US 10-yr yield tested the recent high at 0.97%. Changes on the German yield curve range between -0.4 bps (2-yr) and +1.3 bps (30-yr). 10-yr yield spread changes vs Germany are nearly unchanged. EU and US stock markets record small gains with the dollar testing yesterday’s lows. (DXY 90.50; EUR/USD 1.2175)
News Headlines
The Reserve Bank of India today left its policy rates unchanged at 4.0% for the repurchase rate and 3.35% for the reverse repo rate. The RBI governor Das indicated that the economy was rebounding faster dan expected, but also said that the indications of the recovery were far from broad based. The RBI is keeping an accommodative policy stance. However, as inflation is likely to remain elevated it constrains monetary policy from using the space available to support growth at the current juncture.
The November Canadian payroll report beat forecasts (+62k). Jobs in the services sector rose by 17.9k. The goods sector even added 44.2k jobs. The unemployment rate declined from 8.9% to 8.5%. The Canadian dollar recently was already in good shape as the loonie profited from a weaker US dollar and a higher oil price. USD/CAD dropped to the 1.2820 area, the strongest level for the Canadian currency since October 201
