Markets
There wasn’t really much to trade on yesterday, so sentiment called the shots once again. European risky assets traded muted. The EuroStoxx50 did manage a close above first resistance (3221) for a second day straight but with no follow-up gains. Stocks in the US rebounded almost 2%, more than erasing the knee-jerk downleg in the wake of Trump in effect burying fiscal stimulus talks until after the elections. Investors assume more aid will come one way or another. Timing is less relevant. Biden doing well in the polls could also be a positive for stocks since he already made clear he’s willing to let the money flow. The Fed meeting minutes revealed some governors would like to assess the bond buying programme in coming meetings, suggesting they might put an increase on the table. Fed vice-chair Williams later said however that the Fed is already “purchasing an extremely high level of assets”. The US 10y auction went smooth with higher bid-to-cover and more indirect bidders – suggesting healthy (foreign) demand.US bonds were under pressure nonetheless as risk-on dominated. The yield curve bear steepened with yield changes varying from 0.5 bps (2-yr) to 5.2 bps (10-yr). German yields also advanced though less (up to 1.9 bps in the 30-yr), only briefly and temporarily interrupted by dovish quotes from ECB president Lagarde and even Weidmann (who suggested rate cuts are still possible). Peripheral spreads tightened. Greece (-5 bps) outperformed peers. The dollar suffered more from the risk-on than rising US (real) rates. EUR/USD rose from the 1.173 to 1.176. USD/JPY had a good run. Several attempts to take out 106 failed though (finished at 105.98). Sterling had another volatile ride where another batch of pessimistic brexit headlines was followed by rumoured behind-the-scene constructivism. EUR/GBP set an intraday high at 0.916 but eventually closed almost unchanged at 0.91.
Asian-Pacific equities are doing well this morning. Gains are almost 2% in New Zealand amid soft central bank talk (see below). Nevertheless, core bonds gain this morning. The dollar trades heavy. EUR/USD extends gains to 1.1774, USD/JPY abandoned another attempt to rise beyond 106 (105.97)
Today’s economic calendar only contains US jobless claims. While interesting, they have lost some market impact over the last few weeks. Still, a big miss is likely to weigh on investor mood. Yesterday’s risk-rally looks to be losing some steam this morning but nothing suggests we’re in for a steep reversal today. US core bonds might outperform a bit from a technical perspective and given yesterday’s moves, even with tonight’s 30y auction looming. This week’s bond selling revealed there’s still more than enough market interest. The dollar might continue to trade on the backfoot but we expect the decline to slow. The EUR/USD 1.18 area is a first resistance. Sterling remains subject to sometimes conflicting Brexit headlines, making it impossible to forecast its day-to-day swings. However, we assume the first high profile support at EUR/GBP 0.903 to hold. The area around 0.913 is a first intermediate resistance.
News Headlines
The house price index of the UK’s Royal Institute of Chartered Surveyors (RICS) unexpectedly jumped from 44 in August to 61 in September, the highest level since June 2002. Pent-up demand, the low interest rate environment and a temporary cut to the property sales tax boosted house prices. RICS chief economist does warn that the combination of significant job losses over the coming month allied to the scaling back of policy initiatives in early 2021 will have an adverse impact on transaction level
RBNZ vice governor Hawkesby and Chief Economist Ha sounded combative to support the recession-hit economy. A Funding for Lending Program is expected to be launched at this year’s final policy meeting (Nov 11) with practical arrangements being made to potentially introduce negative policy rates in the course of next year. Hawkesby added that the RBNZ’s inflation target, employment target and financial stability consideration are all telling the central bank to be very supportive. NZD/USD briefly dipped to 0.6550.KBC Sunrise Market Commentary
