Markets
Global core bond are mixed today. US Treasuries and German Bunds edged lower at today’s opening, on the back of positive Asian risk sentiment. European equities opened higher as well but paired those gains almost immediately to continue to move south throughout the day. The Bund made an intraday U-turn as Italian Q3 GDP data showed a stagnation, sending BTP’s back in sell-off mode. Lega’s Salvini blamed previous government for weak results. The euro-area economy unexpectedly grew at its weakest pace in more than four years. GDP increased by 0.2% in Q3, while a stabilization of the 0.4% in Q2 was expected. Half what was forecasted and half of GDP growth in Q2. On a yearly basis, GDP slowed down from 2.1% to 1.7% (1.8% expected). The fall in economic confidence from 110.9 to 109.8 suggests a more enduring slowdown. US housing data continued their slowing trend which caused US Treasuries to recover some ground. The US yield curve edged still higher though today with the wings underperforming the belly of the curve. Changes range from +1.2 bps (5-yr) to +1.9 bps (30-yr). The German yield curve bull flattened with changes from -0.4 bps (2-yr) tot -1.2 bps (30-yr). Peripheral bond spreads over Germany widen with Italy (+16 bps), Greece (+5 bps) and Spain (+4 bps) underperforming.
FX markets were poised for some intraday volatility as today’s economic calendar contained several potential market movers. Following lower than expected Q3 growth in Italy and France, growth in EMU fell well below expectations (0.2% QoQ vs 0.4% expected) as well. German inflation (0.1% m/m) increased a notch more than anticipated even after last month’s jump. In the US the Conference Board consumer confidence was slightly softer than expected taking in account last month’s downward revision, but remains at a very lofty level. Eurobears initially pulled EUR/USD closer to the 1.1301-support after having digested the GDP data. The pair rebounded when the first American traders joined the currency arena ahead of a prudent US stock rally and was, perhaps, supported slightly by German inflation data. Both EUR/USD and stock markets topped off intraday highs however as the current risk environment proves too fragile to sustain the gains. EUR/USD is changing hands at 1.136. USD/JPY also retreated from its intraday top and is currently trading at 112.7.
EUR/GBP’s upwardly oriented trend was probably more related to sterling weakness than it was to euro strength. The pound suffered more from today’s fragile risk environment, overshadowing a soft EMU data batch. UK’s CBI data came in below expectations and were no help for sterling either. There were no relevant brexit updates to base trading upon. Investors don’t want to be positioned sterling long ahead of Thursday’s central bank gathering even if no important decisions are expected. EUR/GBP is currently filling bids at 0.892, up from 0.888 this morning. Cable followed EUR/USD in lockstep, losing ground before reversing losses partially around noon. The pair trades in the 1.274-area.
News Headlines
Eurozone eco data printed mixed to disappointing. Euro zone growth slowed to 0.2% Q/Q (vs 0.4% Q/Q expected), which is the slowest growth rate since 2014. National data showed a stagnation (!) in Italy while French GDP only increased by 0.2% Q/Q. German data aren’t available yet but new emissions tests probably hit the German car production and GDP growth as well. EMU EC economic confidence dropped for a 10th month straight, from 110.9 to 109.8. German October labour market data were a bright spot. Unemployment declined by 11k with the unemployment rate stabilizing at a multi-decade low of 5.1%. German inflation accelerated further from 2.2% Y/Y to 2.4% Y/Y, but this is probably due to a base effect in prices of recreation and culture.
