Markets
As expected, the new trading week took a slow start. US markets are closed for the President’s day holiday and there were few eco data in EMU. Chinese investors this morning felt some comfort as authorities further eased monetary conditions in order to facilitate the restart of the economy from the corona hit. The government also readies (selective) fiscal stimulus. Given tight supply chain links between China and the EU, the expected stimulus should in theory also be good news for Europe. Even so, the equity gain/risk rally in Europe was limited and selective (e.g. automobiles). European investors stay reluctant to fully play the card of the ‘reflation trade’ without backing from the US markets. Trading in bonds and the major FX cross rates was mainly order driven and technical in nature. After some tentative optimism at the start of trading, Europe soon returned to a cautious approach. German yields are little changed to marginally lower for longer maturities (less than one bp). 10-y intra-EMU spreads versus Germany mostly are trading marginally tighter (Italy -2 bp).
On the FX markets, EUR/USD touched a new correction low in the 1.0820/25 area overnight. There were no follow-through losses during the European trading session. At the same time, a brief up-tick to the 1.0850 area soon met ST selling interest. Investors stay cautious ahead of the EMU/German PMI’s to be published on Friday. The Bundesbank warning on the negative impact of the coronavirus for German exports also didn’t help the single currency. EUR/USD currently trades in the 1.0840 area. USD/JPY (109.85 area) is holding an extremely tight range and still fails to take out the 110.13/29 resistance area.
Later this week, we’ll receive an in-depth update on the UK economy as several important data series including the labour market report, price data, retail and economic confidence data will be published. Today, there were only some less high profile eco indicators. Rightmove house prices were strong and a Markit indicator on households’ financial confidence touched the highest level on record. For now, the news didn’t cause any further sterling gains. EUR/GBP hovers in the low 0.83 area (currently 0.8325). The post-election correction low (0.8276) remains within reach and might still be tested if this week’s data show further signs of an economic rebound.
News Headlines
The German Bundesbank labelled the Chinese coronavirus a cyclical downside risks for Germany. It’s the country’s third biggest export market following the EU and the US. A temporary decline in China could dampen German export growth. There are no signs that growth momentum will pick-up after a flat reading in Q4 2019. Domestic demand (though slowing down) and construction hang in the balance with drops in investments and a drag from trade.
Bloomberg reports that the US Commerce Department is drafting fresh changes to rules restricting foreign companies’ use of US technology for military or national-security products. People familiar with the plan indicate that it is aimed at cutting off Chinese access to key semiconductor technology. The US administration is also considering cutting off China from jet-engine technology.
The Kingdom of Belgium intends to issue a new 20-yr government bond (OLO 90; Jun2040). The bond will be launched in the near future, likely tomorrow, depending on market conditions. It’s the second syndicated deal after 10-yr OLO 89 (€6bn 0.1% Jun2030) mid-January. The Belgian 2020 gross borrowing requirement amounts to €31.46bn (vs €35.67bn last year), mainly covering net financing requirements (€9.6bn) and maturing debt (€18.46bn). The lion share of this amount will be raised by OLO issuance (€28bn vs €29.74bn in 2019).
