Markets
Global core bonds corrected higher today. The US Note futures tested the 123-12+ contract low early in the session, but a break didn’t occur and attracted technically-inspired buying. A strong European equity market opening weighted as well in the early stages of dealings, but stocks couldn’t build on that opening momentum. EMU EC confidence data went through the roof, but activity data aren’t on investors’ minds in this stage of the cycle. The US eco calendar is empty apart from Fed speeches. We particularly eye Atlanta Fed Bostic’s view on the economy. Bostic votes on policy this year and today’s speech is his first huge public address since being appointed mid last year. Any deviating view from the Fed’s median forecast (3 rate hikes this year) has market moving potential. The US yield curve bull flattens at the time of writing with yields 0.4 bps (2-yr) to 1.8 bps (30-yr) lower. German yields drop between 1.3 bps (2-yr) and 2.2 bps (10-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrow up to 4 bps (Portugal).
The dollar showed a mixed picture today. It gained ground against the euro but struggled against the yen. EMU eco data were strong. EC economic confidence hit the highest level since the autumn of 2000, but it didn’t help the euro. German bunds even outperformed US Treasuries, slightly widening the EUR-USD interest rate differential. In combination with the rejected test of EUR/USD 1.2092 after Friday’s payrolls, it was enough to trigger some further repositioning out of EUR/USD longs. The pair dropped below the 1.20 mark. USD/JPY initially tried to start a new up-leg, but the move lacked strong momentum. EUR/JPY profit taking after last week’s rally and an easing of the equity rally weighed on USD/JPY later in the session. The pair struggles not to drop below the 113 mark.
Sterling trading was still dominated by technical considerations today. EUR/GBP drifted further sought in the 0.88 big figure, mirroring the decline of EUR/USD. The start of PM May’s government reshuffle was slightly positive for sterling. EUR/GBP trades in the 0.8840 area. USD strength dominated the intraday price pattern of cable. The pair trades in the 1.3550 area.
European equities initially extended the positive momentum from Asia and from the US on Friday, opening with gains of up to 0.5%. However, there was no follow-through price action. The equity rally gradually ran into resistance. US equity futures indicated most losses. The major US indices opened with losses of about 0.1%/0.2%.
News Headlines
The economic confidence from the European Commission rose further in December to 116.0 from 114.6 in November, confirming a buoyant activity in EMU economy. The indicator touched the highest level since the autumn of 2000. The improvement was visible across all sectors including manufacturing, services, retail and construction. The Euro-zone business climate indicator showed a similar picture rising from 1.49 to 1.66.
November EMU retails sales printed at a strong 1.5% M/M and 2.8% Y/Y in November. The figure to some extent counterbalanced an unexpectedly large decline in October. Even so, the outcome was stronger than expected.
Romania’s central bank delivered its first benchmark interest rate hike in a decade today, raising it by a quarter point to 2%, with inflation already above its 2017 forecast. A majority of analysts expected the bank to keep its policy rate unchanged.
