Markets
This morning, the developments in the US-Iran conflict still set the tone for trading on global markets. Asian markets reacted with an outright risk-off positioning as Iran retaliated the killing of General Soleimani with a strike on Iraq airbases where US troops are based. However, at the same time Iranian officials indicated that they didn’t want a further escalation of the conflict. Yields and equities reversed part of the early losses. The picture of the dollar/the euro was more mixed. The yen returned its initial gains with USD/JPY rebounding back above 108. However, at the same time, the euro still didn’t profit from the hope on a de-escalation. European investors initially remained cautious to embrace the idea that some calm might return to the Middle East. European equities opened with substantial losses but trended cautiously higher going into the start of the US trading session. Bond markets showed a slightly different picture. Bunds and Treasuries reversed the overnight risk-off spike, with bunds even slightly underperforming. Eco data had only limited impact. December German orders data again disappointed (-1.3% M/M vs 0.2% expected). The EC confidence data painted a mixed picture with signs of bottoming in the services sector, but a further dismal performance in the industry. The data were largely ignored. In the US, ADP report printed at a stronger than expected at 202 000 net job growth. The November figure was also upwardly revised to (124k). The reported triggered an albeit modest further rise in core yields and in the dollar. At the moment of writing, US yields changed less than one bp across the curve compared to yesterday’s close. Bunds slightly underperform Treasuries with yields rising between 0.5 bp (2-y) and 2.3 bp (30-y). A German 10-y auction (3.5 bln) received very mediocre buying interest with an overall bid-cover of only 1.2. Intra-EMU spreads narrowed 3 to 6 bp with the periphery outperforming.
In the currency market, the sluggish performance of EUR/USD from the previous days continues (despite slight relative interest rate supported). The pair trades currently in the 1.1125 area, testing Friday’s correction low. The improved risk sentiment and an overall stronger dollar propelled USD/JPY back to the upper half of the 108 big figure (currently 108.65 area).
There were few important eco data in the UK today. Sterling mostly traded sideways against the dollar (cable near 1.3125). The UK currency gained modest ground against the euro, feeling some of the overall EUR/USD weakness. EU Commission President Ursula Von der Leyen repeated the EU view that it won’t be possible to reach full EU-UK deal by the end of the year as she is heading for a meeting with UK PM Johnson. For now the impact on sterling is limited. EUR/GBP is trading in the 0.8475 area.
News Headlines
The Polish central bank kept its policy rate unchanged at a record-low of 1.5% today. Higher than anticipated preliminary inflation numbers published yesterday – 3.4% Y/Y in December, consensus at 2.8% – backed rate-hike calls which the central bank left unanswered. Markets are now pondering whether the central bank will change its rhetoric given inflation is almost touching the upper tolerance limit of 3.5%.
According to ADP, US private payrolls surged in December adding 202K jobs (consensus at 160K), the highest job growth in eight months, after an upwardly revised 124K gain (+ 57K) in November. Both small (69K) and medium (88K) firms as well as large firms (45K) posted gains. The ADP report signals a resilient US labour market against the backdrop of cooler economic growth and geopolitical woes.
