Markets
There were no important data in EMU today. Equities shifted into a lower gear after the recent rally, but losses stay modest for now. Still, core (EMU & US) yields traded with upward bias. The Swedish Riksbank raised its policy rate from -0.25% to 0%, leaving a period of almost 5 years of negative interest rates behind. The Riksbank’s move was more or less expected, but confirms that the bar for (further) aggressive monetary stimulus via negative interest rates is being put ever higher. Core bonds declined further after decision. US eco data were second tier, but both higher than expected jobless claims and a disappointing Philly Fed business confidence slowed the intraday rise in core yields. The US yield curve steepens with the 2-y yield little changed. The 30-y yield is rose 1.3 bp. The German yield curve continues its bear steepening trend with the 2-y rising 1.5 bp and the 30-y rising 2.7 bp. Intra-EMU 10-y yields spreads changes versus Germany are mostly limited with Greece (+6 bp) and Italy (+6 bp) underperforming. EUR/USD this morning tried to recoup part of yesterday’s setback, but the move had no strong legs. The pair trades currently again in the 1.1115 area, near recent lows, despite mediocre US data. The picture of USD/JPY is different. A less buoyant equity performance and soft US data, pushed the pair off an intraday cliff. The pair is currently trading in the 109.35 area. A retest of the 109.75/110 area looks ever more difficult.
With the UK retail sales, CBI sales data and Bank of England policy decision, there were several topics to potentially move sterling. Retails sales disappointed. Sales ex auto fuel unexpectedly dropped by 0.6% M/M, bringing the Y/Y measure down to 0.8% from 2.7% Y/Y in October. Uncertainty on the UK elections and on further developments in the Brexit process might explain part of the poor sales performance. There might be some statistical issues with respect to Black Friday, too. Even so, combined with a poor October figure, the contribution of sales to Q4 growth will probably be negligible if not negative. In a separate report, CBI also reported poor sales for the time of the year. Even so, the loss of sterling after the sales data was limited. EUR/GBP held a tight range near the 0.85 big figure. The BoE as expected left its policy unchanged (BoE rate at 0.75%). Two members again voted for a 25 bp rate cut. The BoE didn’t change its November assessment in any profound way. It will monitor global trade developments and the domestic political developments. If uncertainty stays at a high level, further stimulus might be warranted. In an orderly context, a limited gradually rate rise might still be the outcome. Sterling lost a few ticks this afternoon. At EUR/GBP 0.8525 and cable 1.3040, sterling traders in the first place keep the political developments on the radar.
News Headlines
Sweden’s Riksbank left an era of sub-zero rates behind by increasing rates 25 bps to 0%. It will keep rates at that level in the coming years. The rate hike was expected and left few traces on the krone. In contrast, the Norges Bank kept rates unchanged at 1.50%. The NB made several references to the Norwegian krone’s weakness but that’s not enough a reason to raise rates at this stage. It didn’t escape to market’s attention though. EUR/NOK slid below 10.
Belgian business confidence showed further signs of bottoming out, increasing from -3.9 to -3.4 (vs. -3.5 expected). The biggest boost came from the building industry. The sector registered increased activity and expects demand to remain solid. Wholesale/retail trade was a major drag on the headline figure on disappointing sales and faltering expected demand.
The German Federal Finance Agency said it will begin selling about 10 bn of green bonds starting from the second half of 2020. Proceeds from the bonds will be used to fund projects with “a positive ecological-sustainable effect”, some of which could be part of the German government’s €54 billion Climate Protection 2030 plan.
