Markets
Global core bonds were mixed today in a relatively calm trading session. Investors turned more defensive following Friday’s market rally caused by Fed chairman Powell’s reassuring comments and solid US data. Both US Treasuries and German Bunds moved higher. Focus of today was/is the start of face-to-face trade talks between the US and China. No news of progress was released up until now. However, the fact that Chinese VP Liu He unexpectedly joined the negotiations did stress the importance of the ongoing talks. With the US government still shut down, no US economic data is set to be released today except the Non-Manufacturing ISM. A small negative surprise didn’t really bother markets. The US yield curve edges lower at the time of writing with changes in the range of -1.4 bps (2-yr) to -3.1 bps (30-yr). German data printed mixed, keeping the German Bund around opening levels. The yield curve edged little up with changes varying between +0.6 bps (10-yr) to +1.2 bps (2-yr). The Belgian government announced the issuance of a new 10-yr benchmark bond for tomorrow, causing Belgian bonds to slightly underperform other (semi-)core EMU bonds.
The post-Powell rebound of EUR/USD took a breather at the start of the European trading. Mixed German data maybe caused some temporary caution among euro bulls. European equities failed to maintain opening gains, but the softer risk sentiment didn’t hurt the euro in a profound way. On the contrary, dollar weakness prevailed. Investors continued selling the dollar as the they saw growing chances of the Fed turning more cautious on policy normalization in a context of risks to global growth and higher market volatility. Friday’s indication from Fed’s Powell on a flexible Fed policy approach raised chances of the dollar losing more interest rate support in the future. Interest rate differentials between the US and Germany again narrowed slightly after Friday’s (temporary) widening. EUR/USD soon started a new intraday upleg and is currently trading in the 1.1465 area. USD/JPY showed no clear trend. The pair hovered in the lower half of the 108 big figure. The ISM non-manufacturing ISM to be published later today is the next point of reference for USD traders. A soft figure might reinforce the USD downside momentum.
UK politicians returned from their New year holdings today, causing some kind of a revival of Brexit headlines. However, there was no indication that the political stalemate is coming closer to any kind of solution. New headlines on all kind of Brexit contingency plans being put in place were no help for sterling. Last Friday, sterling profited temporary from an improvement in global risk sentiment, but this factor also petered out today. EUR/GBP was also slightly supported by the rise in the EUR/USD headline pair. The pair trades currently in the 0.8975/80 area. Cable rebounded to the1.2775 area but this was USD weakness rather than sterling strength.
News Headlines
The US non-manufacturing ISM declined more than expected in December: from 60.7 to 57.6 (vs 58.5 forecast). The decline was less outspoken than last week’s manufacturing gauge. Importantly: new orders remained strong (62.7).
In its first official estimate, India’s statistics ministry forecasted 2019 growth at 7.2%, matching consensus. It would make India one of the world’s fastest growing major economies in an environment marked by rising global (growth) risks. The positive growth outlook is considered a boost to PM Narendra Modi ahead of the 2019 general elections.
Euro zone retail sales rose by 0.6% M/M in Nov., beating 0.2% M/M consensus following an upwardly revised 0.6% M/M in Oct. Sales were driven by non-food products and petrol stations. Only food, drink and tobacco (-0.9% M/M) contributed negatively with textiles, clothing and footwear (+2.7% M/M) showing a significant rise. German factory orders fell for the first time in 4 months (-1% M/M) in November, but data were biased by October airplane orders.
