Markets
Trading was muted today on main FI and FX markets was muted today. The story remains the same: low volume, technical-inspired action. The US and German 10-yr yields remain attracted by nearby resistance levels, respectively at 1.94% and -0.25%/-0.22%. US yields rise by 1.4 bps (5-yr) to 0.9 bps (30-yr). Changes on the German curve are even more modest, ranging between +0.3 bps (2-yr) and -0.5 bps (30-yr). 10-yr yield spread changes vs Germany widen by up to 4 bps (Italy). The dollar ekes out additional gains after breaking minor resistance (this week’s highs). In EUR/USD we’re talking about the 1.1112 which brought us back to the more high profile1.1085 which worked as a pivot within the 1.09-1.12 trading band of the past quarter. Sterling reversed yesterday’s losses with EUR/GBP returning from 0.8550 to 0.85. An upward revision of Q3 GDP (0.4% Q/Q) supported the UK currency. UK PM Johnson’s brexit bill was also approved by the UK House of Commons, in a 358-234 vote. Stock markets remained in a sweet spot with European indices rising by up to 0.5%. Low market volatility, side-lined central banks, disappearance of short-term event risk (no deal Brexit; US-China trade) and lack of direction from eco data provided a fertile breeding ground for stocks.
News Headlines
Germany’s DIW institute said the country’s economy likely shrank in the fourth quarter by 0.1% q/q, adding they could hope at most for a stagnation. Earlier this week, the Ifo institute expected the economy to grow by 0.2%. DIW blamed the ongoing weakness in the manufacturing sector for the projected contraction while state spending and consumption cushioned the blow partially. On the bright side, DIW noted German companies are again more optimistic about the future and international business.
Canadian retail sales disappointed heavily in October. Headline sales slid -1.2% m/m vs. a 0.5% rise expected. Cars and building materials added the most to the decline. In terms of volume, sales printed the steepest drop since 2017 (-1.4% m/m). Excluding autos, core retail sales dropped -0.5% m/m (vs. 0.2% rise expected). Losses for the loonie are limited to -0.3% against the US dollar.
Bank of England member Haskel yesterday voted in favour of cutting the policy rate by 25 bps yesterday. He today clarified his call: “I now judge a lower rate and a more protracted period of looser monetary policy to be more appropriate. Uncertainty could remain entrenched as the process of U.K.-EU trade negotiations unfolds, the labor market may slow down causing a longer and deeper reopening of excess supply.”
