Markets
Dollar strength drew most attention in today’s uninspiring start of the trading week. It remains the path of least resistance on FX markets, though that could change later this week with key US eco releases (ISM’s, ADP-report and payrolls). The trade-weighted dollar set a minor new 2019 high just below 99.50. EUR/USD changed hands south of 1.09 for the first time since 2017. Next support kicks in at 1.0778/1.0821. Mixed EMU eco data didn’t help the single currency. The unemployment rate declined from 7.5% to 7.4%, the lowest level since May 2008. German inflation numbers disappointed at -0.1% M/M and 0.9% Y/Y. That’s the softest reading since the end of 2016 and way off the ECB’s 2% inflation target. Core bond markets were more at ease today. Both the Bund and the US Note future traded with a minor downward bias as European risk sentiment didn’t show similar weakness as WS on Friday and Asia overnight. White House trade advisor Navarro labelled a Bloomberg report about the US administration mulling to block Chinese investments as “fake news”. US yields 1.3 bps to 2.2 bps across the curve while the German yield curve bear steepens (+2.2 bps for 30-yr). 10-yr yield spread changes vs Germany are broadly unchanged. Friday’s signs of thaw at the US money market were confirmed by the take-up at today’s reverse repo operation by the NY Fed ($63.5bn vs $100bn on offer). It suggests no end-of-quarter trouble.
Sterling refound some vigor following Friday’s losses induced by a bearish BoE speech with governor Saunders hinting at rate cuts even in case of a Brexit delay. EUR/GBP fell from 0.89 towards 0.8850. PMI’s, to be published later this week, could strengthen his argument. Talk of town at the Tory party conference are allegations against PM Johnson over corruption. The Brexit process lacks progress while the shout to topple Johnson and install a caretaker government before fresh elections (as suggested by the Scottish National party) becomes louder. This remains risky business though because the UK faces fresh elections if such caretaker government can’t be installed within two weeks’ time.
News Headlines
NY Fed president Williams said central bank reserves will probably have to be higher in the future to avoid a repeat of the recent turbulence on the repo market. He added that liquidity is not moving around as easily, which means that the Fed needs to make sure they have enough reserves to ensure that money market rates stay within a narrow range.
The Bank of Japan tweaked its bond buying range by raising the October purchase band in the 1-3 yr zone while cutting 4 longer maturities. The central bank also indicated it may even stop buying debt of more than 25 years. The move is aimed at steepening the yield curve. Regarding its equity program, ETF purchases were the lowest in three years this month. However, it is considered as the BoJ sticking to its self-imposed rule that it buys only ETFs on days when the Topix index falls 0.5% or more. The index rose 5% this month.
Turkish Treasury and Finance minister Albayrak raised its economic growth forecast for next year to 5% (vs. 3.5% earlier). That’s a fierce rebound from an expected 0.5% in 2019 (vs .2.3% earlier) and is projected to go hand in hand with a rather modest rise in the current account deficit. The inflation outlook has been lowered to 12% (2019) and 8.5% (2020).
