Markets
Not much to see today. US markets were closed for Labour Day while the economic calendar held no major data releases. In addition, the ECB policy meeting and the updated forecasts on Thursday probably keeps investors on the sidelines – although it is already clear that inflation projections will probably be downgraded, likely prompting questions from the audience about additional stimulus. Trading thus remained largely sentiment and technical driven. A mixed Asian session morphed into outright bullish European dealings, ignoring waning momentum in the German industrial sector (see headline below). Equities thereby recoup part of the fairly steep losses last Thursday and Friday. The EuroStoxx50 (+1.5%) closed at key support near the upward sloping trendline end of last week and stages a technical rebound today, clearing the 3300 hurdle. German stocks outperform (+1.8%). On US equity futures markets (cash markets remain closed), the tech-heavy Nasdaq resumes its slide (-0.7%). German yields gapped higher at opening but all gains evaporated as trading evolved. Yields remain unchanged eventually across the curve. Peripheral spreads narrowly widen (+1 bp in Greece, Spain, Italy and Portugal).
The dollar enjoyed the benefit of the doubt on FX markets though moves clearly lack impetus. Barring a brave attempt during early European dealings, EUR/USD remained downwardly oriented. The pair fell from 1.184 towards 1.182 at the time of writing. The trade-weighted DXY (93.01) tries to recoup the 93 level again after its effort in the wake of Friday’s payrolls failed. USD/JPY oscillated near opening levels of 106.3. The pound sterling is today’s obvious G10 underperformer. PM Johnson is preparing legislation that undermines key elements of the earlier rubberstamped Withdrawal Agreement, including the politically sensitive Northern Ireland protocol. He also upped the ante by announcing October 15 as the deadline at which a trade deal should be a done deal. The EU responded it is ready to trade with the UK on WTO terms if needed while Germany urges the country to compromise. Tomorrow marks the start of another negotiating round but the UK’s move is likely to cripple the already difficult talks even further. Sterling takes a hit. EUR/GBP advances from 0.891 to the 0.899 resistance area. Both sterling weakness and dollar (limited) strength pushed cable off a cliff. GBP/USD declines from 1.328 to 1.315.
News Headlines
German industrial production data as published this morning disappointed. Production rose for the third consecutive month. However, the pace of growth slowed to 1.2% M/M in July from 9.3% M/M in June. The market expected a rise of about 4.5%. In July production was still 10% below the level of July last year, only slightly better than the -11.4% Y/Y in June. Germany had performed relatively well during the first phase of the corona crisis. However, today’s data contribute to other evidence that the recovery might be slower that hoped for.
Relations between Germany and the Russian government are reported to have further deteriorated due to the inquiry into the poisoning of opposition leader Alexey Navalny. Senior members both of Angel Merkel’s own party and also of the Social Democrats indicated that the development in the Navalny inquiry could call into question the Nord Stream 2 pipeline project.
