Markets
Global core bonds traded mixed today as risk sentiment soured again in a day characterized by low trading volumes. Asian markets closed mixed and all European equity indices are trading in red. German Bunds and US Treasuries edged little higher but the Bunds paired those gains throughout the day and are currently trading with losses. The Empire Manufacturing confidence for December dropped to 10.9, from 23.3 in November, the lowest since April 2017. US equity markets opened lower as well. The NAHB Housing Market Index could prove interesting as well, as a further decline would confirm the weakening of the US housing markets. President Trump once again shed his light on the Fed’s monetary policy. He finds it “incredible” that the Fed is even considering a new rate hike. Nonetheless, a new hike at the December meeting is widely expected. Focus will be on the new growth-, inflation and policy rate projections and Chairman Powell’s speech afterwards. Up until then, we expect low volume trading. The German yield curve edged higher with changes ranging from +0.6 bps (2-yr) to +1.5 bps (5-yr). The US yield curve moved south, with changes varying between -1.3 bps (30-yr) to -1.9 bps (5-yr).
The dollar initially traded little changed from Friday but gradually reversed part of last week’s ‘gain’ today. Trading was mainly order-driven. EUR/USD hovered in the low 1.13 in Asia and early in Europe. European equities opened with modest losses. Given the big losses in the US on Friday, the open of European equity markets wasn’t too bad. This relative calm maybe slightly eased USD demand but technical considerations probably prevailed. Late in the morning session, EMU headline inflation was unexpectedly downwardly revised to 1.9%. Sentiment on risk also deteriorated again. Still, EUR/USD maintained its cautious upward intraday bias. Dollar softness continued in US trading as the Empire manufacturing survey printed softer than expected. US-German interest rate differentials narrowed against the dollar. EUR/USD is trading in the mid 1.13 area. USD/JPY is also drifting south with intraday selling accelerating after the Empire manufacturing survey. The pair is currently changing hands in the 113 area.
Sterling showed no clear trend today, losing a few ticks against the euro but holding near last week’s close against an overall weakish dollar. The political stalemate on Brexit simply persists. PM May continues to reject all calls for parliament to give its view on alternative options for Brexit, including a second referendum. EUR/GBP is again nearing the 0.90 big figure. Cable (1.1615 area) is holding well off last week’s multi-month low.
News Headlines
The German Bundesbank warned for the country’s dominant car industry to take longer than initially thought to recover from Q3’s slump. The bank said domestic consumers in particular are holding back on car purchases. Export orders remain strong and other sectors do perform well, pointing to a “noticeable” expansion of the German economy in Q4.
The IMF said it could cut further global growth forecasts after it slashed 0.2% points back in October. The US-Sino trade frictions are affecting the global economy, particularly Asian economies, through the confidence channel, the director of the institution’s Asia and Pacific Department said, citing much weaker than expected investments.
Days before the central bank’s key policy meeting, US president Trump lashed out at the Fed again, saying it is “incredible” to “even consider” another rate hike. While Trump calls for flexibility of lower rates to support the US in its trade crusade, the Fed is widely expected to increase rates Wednesday for a fourth time this year.
