Markets
Global sentiment was key today. The trading week started off with investor optimism ahead of a very busy week. Constructive trade talks and – albeit to a lesser extent – Brexit caused a test by WS of it’s all-time highs on Friday and continued to lift spirits today. Equities grind higher. The S&P500 is currently again testing its new all-time high. Core bond yields also rise with UST’s underperforming Bunds. The US yield curve bear steepens with yield changes varying from 4.0 bps (2-yr) to 5.4 bps (10-yr). German yields add 1 bp (2-yr) to 3 bps (10-yr). Peripheral spreads are stable with Italy underperforming (+2 bps). Salvini’s Lega won regional elections in the traditionally left led Umbria, heaping pressure on 5SM’s centre-left coalition in Rome which ditched the Lega. EUR/USD held a steady upward bias during European dealings after slipping below 1.11 last Friday. The couple went for a test near 1.11 but fails to cap it so far (1.1095 at the time of writing). USD/JPY was holding near opening levels of around 108.7 before printing a spike higher after president Trump said the US and China are ahead of schedule on signing a deal. The currency pair is currently filling bids close to but below 109 (108.92).
EU president Tusk announced an agreement on a so-called flextension today. Brexit is now to happen by January 31 or on November 30 or December 31 if the deal gets ratified earlier. With a new delay in place, focus now turns to the UK and possible early elections. Johnson had called for a new ballot on December 12 end of last week. The proposal will be put to vote later today in British Parliament and requires a two-third majority. It is still unsure whether the opposition would support it. To Corbyn, the risk of a no-deal Brexit is still not completely removed – a key demand for Labour to agree on a snap poll – but merely postponed. Johnson’s plan for early elections will be debated tonight, followed by a vote. Sterling isn’t very impressed by Brexit’s latest. EUR/GBP witnessed some ups and downs but all within a tight sideways trading range. News about the Brexit extension went largely unnoticed, supporting our case that the British pound already discounts quite some positive news at current levels of around 0.863. Cable is showing a similar pattern near 1.284.
News Headlines
British retailers saw their sales fall at the gentlest pace in six months in October, CBI data showed. The index rose to -10 from -16 in September but nevertheless marks the longest period of sales decline since the global financial crisis. On the other hand, UK retailers built up stocks by the most since the 1980s reflecting Brexit uncertainty on top of preparations for the busy holidays.
ECB’s bank lending survey shows that Euro zone business lending slowed to 3.7% in September from 4.3% in August, with all major euro zone economies recording drops. What started as a lengthy economic slump originating mostly from Germany’s vast industrial sector appears to be an increasingly persistent and widespread slowdown hurting other economies, sectors and weighing on job growth. M3 money supply also slowed to 5.5% in September from 5.8% in August, setting a gloomy picture.
Argentina’s central bank president, Guido Sandleris, pledged today it would sharply cut the amount of dollars individuals could buy from $10,000 to $100 per month, along with other currency controls amid concerns over outflows of foreign exchange reserves accelerating and a slide in the peso after Macri was voted out of power yesterday.
