Markets
Markets took a slow but constructive start to the new trading week. There were no important data in the EMU or in the US. US bond markets were closed in observance of the Columbus Day Holiday. Even so, for (US) equities the ‘no news is good news’ paradigm persisted with the Nasdaq again outperforming. (Nasdaq close: +2.56%, Dow close: + 0.88 %). Gains on European equities were again much more moderate (0.5%-0.75%). Hope for more fiscal stimulus might still be an underlying issue, but we didn’t see much news on this topic yesterday. A positive investor positioning toward growth stocks in the run-up to Q3 earnings may be also in play. The impact on other markets was modest. German yields even closed marginally lower with the curve still flattening (-1.2 bps for 2-y; -2.3 bps for 30-y). The dollar held near recent correction lows, with the TW dollar (DXY) nearing but not breaking the 93 level. EUR/USD temporary filled bids below the 1.18 mark, but finally close slightly above (1.1813) in basically directionless trading. No hard Brexit news was also slightly good news for sterling. PM Johnson announcing a three-tier system to address the spreading of the corona virus in different regions, but at the same time trying to avoid a full lockdown, maybe was slightly sterling supportive, too. EUR/GBP closed at 0.9042. Despite a broader constructive risk sentiment CEE currency (especially the CZK and the HUF) again underperformed
Asian equites aren’t able to full join the risk-on from US markets yesterday. Chinese data (cf infra) were constructive as the rise in both imports and exports suggests that the economic rebound remains on track. The PBOC set the daily fixing for the yuan close to expectations. The yuan is trading little changed from yesterday’s close (6.7550 area). The dollar is gaining marginal ground as US equity futures show tentative signs of taking a breather. (DXY 93.15; EUR/USD 1.1800 area, USD/JPY 105.40 area).
The eco calendar is moderately interesting. ZEW investor confidence (expectations) is expected to ease slightly from a multi-year top reached last month. US NFIB small business confidence is expected to rise from 100.2 to 100.9. US September core inflation might trend cautiously north from 1.7% Y/Y to 1.8%. However, we don’t assume these data to change markets’ expectations on an extended period of ultra-low rates. Equity markets will prepare for the start of the Q3 earnings season (JP Morgan, J&J, …). Over the previous days, the rise in core (especially US yields) slowed. If the equity rally were to take a pause, core bonds might remain well bid. The German 10-y yield is nearing the-0.56%/-0.60% support area. The range top of the US 10-y yield at 0.80% looks solid. The EUR/USD picture improved after the pair regained the 1.1696 area. However, in a daily perspective further USD losses probably aren’t that evident. A temporary setback below 1.18 might be on the cards. Of late, sterling resisted the Brexit uncertainty (Brexit deadline 15 October) quite well. The BoE recently indicating that it isn’t ready to implement negative policy rates probably eased some of the underlying selling pressure vis-à-vis the UK currency. We also keep an eye at the performance of the CE currencies if risk sentiment turns less buoyant.
News Headlines
Chinese exports in September rose with 9.9% y/y, close to the 10% markets anticipated. Imports however soared 13.2% while a near status quo was expected (0.4% y/y),ending a two-month decline and creating a narrowing trade surplus to $37bn for the month. The US trade surplus narrowed from $34.24bn to $30.75bn. Details showed a particular import rise in tech components, a possible sign Chinese companies are stockpiling ahead of further US sanctions on China’s Huawei.
South Africa’s Economic Advisory to President Ramaphosa warned the country won’t be able to meet its debt targets and that it isn’t desirable for it do so in current pandemic . Finance minister Mboweni said earlier he plans to stop the debt level increase at 87% in 2023/24. Ramaphosa is to unveil a recovery programme on October 15.
