Markets
US President Trump’s positive Covid-19 test and the possible implications stemming from his upcoming quarantine period dominated news coverage today. It adds an umpteenth layer of uncertainty in what will likely become the most contested US presidential election on record. The Vix index – expected volatility of the S&P 500 in the coming month – rises by 7.5%. Market sentiment turned risk-off in a Pavlov-reaction as the news broke this morning. We add though that markets didn’t really gain momentum during European trading hours. Most of them did manage to hold on to those initial moves. Gold prices add around 1%, touching their best level in two weeks time. The Japanese yen returned as investor’s favorite in current circumstance with USD/JPY touching 105, coming from USD/JPY 105.65. The pair currently changes hands near 105.30. Core bonds profit with US Treasuries outperforming German Bunds. The US yield curve bull flattens with yields losing 0.7 bps (2-yr) to 1.7 bps (30-yr). German yields lose around 1 bp across the curve. 10-yr yield spread changes vs Germany narrow by up to 2 bps. US equity futures trade around 2% lower with European cash markets following the way south (-1%). The dollar only made a knee-jerk spike higher. The trade-weighted dollar (DXY) failed to retake 94 resistance. EUR/USD in a similar way retested the 1.1696-mark, also without success. The jury remains out though given the proximity of these levels.
• The blockbuster Trump news took some shine of today’s other events. Headline EMU inflation printed in negative territory for a second month running (-0.3% Y/Y) with the core measure – excluding volatile components like food and energy – sliding to 0.2% Y/Y, the softest inflation print since the creation of the euro zone. ECB Lagarde warned of dismal figures for the remainder of the year at the previous ECB press conference. She expects inflation to slowly pick-up in 2021. The low inflation holds pressure on the ECB to keep monetary policy very accommodative for the foreseeable future. US September payrolls added 661k jobs (vs 859k expected). The previous two months’ figures did dace a 145k upward revision, balancing the report. Details painted a less brighter picture with permanent job losers rising by 345k to 3.8 mio, a 7-yr high. People classified as “long-term unemployed” (27 weeks and longer) rose by 781k to 2.4 mio, the highest level since 2015. The unemployment rate declined more than forecast (7.9% from 8.4%), but beneath the surface we see a new decline in the participation rate (61.4% from 61.7%). Eco data failed to trigger any market reaction.
Sterling ranked a close second best amongst majors behind JPY today. That obviously had nothing to do with risk sentiment (disadvantageous for GBP), but with the evergreen… brexit. UK PM Johnson will travel to Brussels this weekend to meet with EC President von der Leyen to try to break the political deadlock. EUR/GBP fell from 0.9120 towards 0.9050.
News Headlines
The ECB will start running an experiment with a digital version of the euro, trademarked last week as “digital euro”, along with a public consultation starting October 12. The move is an important step towards the formal introduction of blockchain in payments. The rise of cryptocurrencies has spurred central banks across the world to take a closer look at the technology. The ECB added a digital euro would not replace physical cash but complement it.
Spain created a total of a little more than 84 000 jobs in September, the fifth consecutive month of job creation. Hiring in education, agriculture and in the civil service compensated for a 67k job loss in hospitality and commerce as the tourism season ends. Some 25% of the more than 3 million people in April remain furloughed in September. The positive evolution takes place against the background of a second Covid-19 wave in Spain which caused the country to tighten some of the rules again, suggesting a slower recovery path going forward.
