Rates: US yields arrive at key support levels
US yields hit key support across the curve following last week’s first warning by several Fed heavyweights about negative risks to the eco outlook, which mainly stem from abroad. We don’t expect any breaks lower in this week’s holiday-shortened (Thanksgiving) and eco/event thin dealings. Risk sentiment will probably determine intraday gyrations.
Currencies: USD eases as markets question late cycle Fed rate hike path
The US yields and the dollar declined on Friday as Fed members including Fed’s Clarida indicated that the Fed is nearing a more neutral policy stance. This week, the eco calendar is thin. For now, we expect the news flow the remain positive enough for the USD to stay above key technical levels. Brexit headlines probably still won’t help sterling
The Sunrise Headlines
- US equities were mixed on Friday with technology shares underperforming (Nasdaq -0.15%). Asian stock markets opened this week’s session mostly with gains. Australia and Singapore are underperforming.
- Michel Barnier, EU’s chief brexit negotiator, proposed to extend the Brexit transition period to 2022. Meanwhile, UK PM May is fighting to keep the Brexit deal (and her premiership) alive, as a leadership vote is looming.
- At the Asia Pacific Economic Co-operation meeting over the weekend, US-Chinese trade tensions heated up, damping hopes of progress. US VP Mike Pence and Chinese president Xi Jinping had discussions on trade and security.
- Japan’s exports recovered in October to 8.2% (YoY) from last month’s surprise drop by -1.3% (YoY). However, Japanese policy makers remain cautious on the overall economic impact of global trade friction and slowing external demand.
- US President Trump suggested the killing of Khashoggi may never be resolved, despite a CIA report concluding Saudi Arabia’s Crown Prince Mohammed bin Salman was responsible. President Trump receives a full report on Tuesday.
- Republicans enlarged their majority in the US Senate as the recount in Florida confirmed GOP’s Rick Scott has defeated Democrat Bill Nelson. DeSantis and Kemp, two republicans, won the governor seat in resp. Florida and Georgia.
- Today’s economic calendar is uneventful with only economic data of secondary importance in the US, UK and the EMU. Fed’s Williams speaks today. The Belgian debt agency taps the bond market a final time this year.
Currencies: USD Eases As Markets Question Late Cycle Fed Rate Hike Path
US yields arrive at key support levels
Core bonds eked out gains last Friday with US Treasuries outperforming flat German Bunds. European and US stock markets ended close to opening levels with US benchmarks outperforming. Comments by Fed vice-chair Clarida and Dallas Fed Kaplan triggered an upleg in the US Note future. They echoed Fed chair Powell recent warning about the possible impact from slowing growth abroad on the US economy. Fiscal stimulus also threatens to turn into a headwind from being a tailwind in recent months. Last week marked the first time that heavyweight Fed-governors stepped out with a more cautionary tone about the future. They added though that the current state of the economy remains magnificent. Fed comments don’t question a December rate hike, but the December dot plot might take into account a slower continuation of the tightening cycle ahead. For now, that’s not our base scenario. US yields declined by 4.2 bps (30-yr) to 6 bps (5-yr) on a daily basis. From a technically point of view, the US 10-yr yield tests the 3.05%-3.07% area which was previously high level resistance (2003 cycle low/2014 high). German yields added around 0.5 bps across the curve. 10-yr yield spread changes vs Germany ended close to unchanged with Ireland (+5 bps) underperforming.
Most Asian stock markets record gains this morning despite disrupting headlines from the APEC-Summit (Asian Pacific Economic Cooperation). Leaders failed to agree on a closing statement because of a trade-related stand-off between China and the US which pours cold water on hopes of a truce in the sidelines of the upcoming G20-meeting (Nov 30). The US Note future has small downward bias at the start of this holiday-shortened week with US Thanksgiving (Thursday) and Black Friday. We expect a neutral opening for the Bund.
Today’s eco calendar is razor thin with only US NAHB housing index and a speech by NY Fed Williams. Williams will probably align with Powell and Clarida’s warnings last week. We don’t expect them to add to strength in US Treasuries. US yields hit key support across the curve (5y: 2.8%; 10y: 3.05%/3.07%; 30y: 3.3%) which we expect to hold. Risk sentiment could determine intraday gyrations on other markets today, but we expect an uneventful trading day. The Belgian debt agency aims to raise €2.9-3.4bn in its final auction of the year, by tapping OLO 82 (0.5% Oct2024), OLO 85 (0.8% Jun2028), OLO 73 (3% Jun2034) and OLO 83 (2.25% Jun2057).
German 10-yr yield holing in the lower part of the 0.3%-0.6% range
