Markets
Asian and European markets this morning received a new nihil obstat for the reflation trade to continue. US stimulus talks were again the usual suspect mentioned to justify the move. The US government indeed is again involved in the stimulus debate with a new $916bln proposal. However, there are still quite some roadblocks to be removed as the proposal still contains plenty of dissonants with the proposals/demands from other parties involved. European equities opened 0.5% to 1% higher but momentum dwindled soon. Headlines from Europe weren’t that bad. German trade data suggested that foreign trade might continue to contribute to German growth in Q4 even as the pace of activity slows. Around noon, headlines flagged that the German EU presidency brokered a deal with Poland and Hungary on the ‘rule of law clause’, removing the obstacles to start spending under the 2021-2027 EU budget and opening the door for the disbursement of funds from the €750bln pandemic aid fund. The details of the agreement still have to be published and need approval from all EU members states, probably at tomorrow’s EU summit. The prospect of fiscal assistance is a key step for the EU/European recovery. However, for global markets it clearly gets far less weight than the US stimulus debate. The announcement of the deal only left minor traces on EMU markets. Equities again about 0.5%. US indices extend their gradual but protracted uptrend, showing limited gains near record levels. The German Bund, after opening slightly lower, held a tight sideways range. Investors stay reluctant to place big directional bets in the run-up to tomorrow’s ECB meeting that is preannounced to deliver a policy recalibration. German yields are declining up to 1 bp (30-y). 10-y peripheral spreads versus German are narrowing a further 2/3 bp. The US curve steepens with yields rising between 0.2 bp and 3.5 bp (30-y). The US 10-y (0.95%) is near the 0.98%/1% resistance. Today’s 10-y auction might cause further price concessions, but a break isn’t evident either ahead of next week’s Fed meeting.
EUR/USD tried resume its uptrend in the 1.21 big figure this morning. However, a constructive risk sentiment and positive news on the EU budget weren’t enough to sustain a strong bid. EUR/USD even dropped back to the 1.21 area. Other major currency cross rates including USD/JPY (104.20) and EUR/JPY (126.25) show a similar indecisive trading pattern. The EU agreement had little impact on EMU markets, but helped the zloty and the forint to recoup some of their recent underperformance. EUR/PLN dropped below the 4.45 support area, opening to way for a retest of the MT 4.37 range bottom. EUR/HUF dropped from the 359 area and currently trades near 356.75. Next resistance comes in in the 354 area. Evidently, one of the key topics is scheduled later today with the Brexit-dinner of UK PM Johnson and EC President Ursula von der Leyen. Several/almost all parties involved in the process again reiterated their point of view and highlighted the need of concessions by ‘the other side’. At least for now, we didn’t see an concrete sign out what side the balance might tilt. Sterling apparently signaled a cautious optimistic bias with EUR/GBP revisiting the 0.90 area.
News Headlines
The EU is set to toughen sanctions on more Turkish individuals and companies responsible for unauthorized drilling in the eastern Mediterranean areas claimed by Greece and Cyprus. The sanctions are to be rubberstamped during tomorrow’s EU summit. Diplomats from Greece and Cyprus already said the new measures do not go far enough.
German Chancellor Merkel urges regional governments to impose stricter lockdown measures that would include closing shops after Christmas. Germany has been in a partial lockdown for six weeks which saw its bars and restaurants closed but shops and schools open. German cases stopped rising exponentially after imposing the measures but remain at stubbornly high levels, nearing 20 000 per day.
