Markets
The combination of little (bad) news and speculation on upcoming additional (fiscal) stimulus were often enough support a by default risk rally recently, especially in US equities. European indices often lagged the performance in the US. This ‘no news, good news’ trading paradigm was put on hold yesterday. Eco data were still few and secondary in nature for trading. German ZEW investor confidence (expectations) unexpectedly tumbled from 77.4 to 56.1. The report at best was only an excuse for an overdue pause in the recent risk rally. US inflation (core 1.7%) was perfectly in line with expectations. In the meantime, the stalemate on further US fiscal stimulus persists. There is not only division between the Democrats and Republicans. Republican Senate leader McConnell prefers a step-by-step approach, but President Trump wants a bigger package. The debate still can make several twists before the November 3 election and so can market sentiment. Yesterday US equities fell prey to profit taking with the S&P losing 0.63% and the Nasdaq easing 0.1%. Decent earnings of JP Morgan didn’t help the banking sector. After a rejected topside last week, the US yield curve resumed a (corrective?) bull flattening with yields between 1 bp (2-y) and 4.1 bp (30-y) lower on a daily basis. Gain in bunds, which outperformed Treasuries of late were more modest with yield declines between 0.7 bp (5-y) and 1.5 bp (30-y). The 10-y is further nearing the -0.56%/-0.60 support area. The dollar this time also profited rather strongly from the albeit mild risk-off correction. EUR/USD forcefully cleared the 1.18/1.1780 area to close at 1.1746. The risk-off and the ongoing stalemate in the Brexit negotiations triggeredquite sharp correction in sterling. EUR/GBP returned higher in the 0.90 big figure (close at 0.9080). CE currencies (PLN, HUF, CZK) also had a difficult session considering the overall mild risk-off.
This morning, Asian equities are joining the mild risk-off from WS yesterday. However, US and European equity futures suggest no further losses at the start today. The yuan is holding up rather well despite yesterday’s USD correction (USD/CNY 6.7385 area). The kiwi dollar also trades rather resilient despite ongoing soft RBNZ comments (NZD/USD 0.6660 area). EUR/USD hovers in the mid 1.17 area.
Later today the eco calendar is gain thin. EMU August industrial production data are outdated. US PPI data probably won’t have a big market impact, even in case of a surprise. The focus of global investors is on activity and the way it is potentially affected by most recent rise in infections, not on price data. ECB president Lagarde, Chief economist Lane and ECB’s Villeroy will speak. Fed speakers include Clarida, Quarles and Kaplan. A more cautious risk sentiment is driving a ST flattening trend on core bond markets. This (technical) move can still go a bit further especially in the US. EUR/USD is consolidating in a ST 1.1612/1.18 range. In case of a more cautious global sentiment, some further downside EUR/USD drift might be on the cards in a day-to-day perspective. It’s also money-time for the Brexit-negotiators (and thus for sterling) as the October 15 deadline is coming very closer. We stay cautious on sterling as there is no guarantee on meaningful process as this deadline expires.
News Headlines
The South Korean central bank left key rates unchanged at 0.5% today as an accommodative stance remains necessary. It maintained its forecast for a 1.3% contraction this year and added that a recovery will be slow and driven by exports. Governor Lee said that the central bank would intervene in bond markets with QE and take steps in FX markets if needed but said that now is not the time.
Australian October consumer confidence jumped to the highest level since mid-2018 (105.02, +11.9% m/m). All underlying components printed an increase with especially forward looking indicators recovering strongly. Expectations about the economy 1 year ahead rose considerably as Australian consumers assume the coronavirus to have run its course by then. The Aussie dollar trades little changed near 0.7166.KBC Sunrise Market Commentary
