Markets:
Global core bond trading started at a slow pace this morning with several Asian markets (eg Japan & India) closed. European investors initially copied this relaxed attitude. An escalation of anti-government protests in Hong Kong rambled markets. Demonstrators flooded the main aviation terminal, causing Hong Kong airport to cancel all flights. Stock markets dived over 1.5% on an intraday basis with core bonds attracting safe haven flows. US Treasuries outperform German Bunds. We add however that the magnitude of the moves might be exaggerated by low trading volumes. Today’s eco/event calendar was completely empty. The US yield curve bull steepened with yields rising by 4.9 bps (2-yr) to 5.8 bps (30-yr). The German yield curve moves in similar fashion with differences are lower, varying between -0.5 bps (2-yr) and -1 bp. 10-yr yield spread changes vs Germany narrow by up to 6 bps for Italy. That’s a small recovery from Friday’s +29 bps widening. Rating agency Fitch didn’t pull the trigger (yet) on the country’s BBB rating (negative outlook) while political parties are trying to find a solution to avoid the snap election poll (eg setting up grand coalition without Lega & other (extreme) right parties) where Lega’s Salvini is steering at. Political leaders will decide today when to table the no confidence vote against PM Conte.
The Hong Kong protest eventually took a grip on FX markets as well. Early dollar strength/euro weakness was erased after the HK airport announcement, forcing an intraday U-turn in the likes of the trade weighted DXY or EUR/USD. The latter set an intraday low around 1.1160 before safe haven flows pushed the pair north of 1.12 again. The main beneficiaries are of course again the Japanese yen or the Swiss franc. USD/JPY extended this week’s steep drop to just north of 105. EUR/CHF approaches the recent lows south of 1.08. Euro weakness also triggered some profit taking in EUR/GBP. News that some UK lawmakers are planning to compel UK PM Johnson to ask for a Brexit deadline extension might have helped the pair to return below 0.93. We wonder though whether these rumours are strong enough to erase no deal Brexit and recession fears. The pair currently changes hands around 0.9280. Gold benefits from the risk aversion on commodity markets, testing the recent highs around $1522.7/ounce.
News Headlines:
Argentine assets are under severe selling pressure today. The peso sinks more than 15% against the greenback propelling USD/ARS to a new all-time high above 60. Argentinian primaries resulted in a bigger than expected win for opposition candidate Alberto Fernandes and his running mate, former president Cristina Fernandez de Kirchner. The ballot is rejection of current President Macri’s austerity policy which sank the country into recession. However, investors fear that a return of office of Fernandez de Kirchner puts Argentinian bonds at risk of default. The official president election takes places on October 27 with the opposition duo clearly in pole position.
The biggest Flemish political party, NVA, published a memorandum of priorities on the incoming Flemish government. The liberal Open VLD and the Christian Democrats of CD&V, who made up the previous regional government accepted the invitation to kickstart coalition talks. Current N-VA national interior minister Jan Jambon has been appointed to lead the formation, putting him on track to become the future Minister-President of Flanders with NVA party leader Bart De Wever shelving his ambitions.
