Markets
Sterling eventually kept its cool last Friday even if UK Premier Johnson indicated that the prospect of a trade deal was “unlikely”, dashing final hopes on an agreement at the EU Summit. A pledge to intensify talks between now and the end of the month didn’t feature in European leaders’ closing remarks, putting the brunt of the effort on the UK. People close to negotiations this weekend suggest that the UK House of Lords will cut the edges of Johnson’s UK internal market bill which rewrites parts of last year’s Brexit withdrawal agreement. The bill begins its process through the UK Upper House today. Watering it down is one of the EU’s key demands. It helps explaining sterling’s performance somewhat better this morning despite the deadlock and despite a Moody’s credit rating downgrade below). EUR/GBP currently changes hands around the all-too-familiar 0.9050 area. The next “hard brexit deadline is end October/early November which “really” is the final timing to get any accord ratified and implemented by the end of the year. We expect last week’s volatility to remain part of daily trading lives over the next two weeks.
Most Asian stock markets trade around 1% higher this morning with China underperforming after disappointing Q3 GDP figures (2.7% Q/Q vs 3.3% Q/Q expected). The domestic services sector was responsible for the negative surprise with manufacturing in better shape. Better than expected monthly (September) data were obviously ignored. Industrial production rose strongly (6.9% Y/Y) and is up 1.2% YTD YoY. Retail sales picked up pace (3.3% Y/Y) after returning to growth in August, but remain down YTD YoY (-7.2%). Investments returned to growth YTD YoY (0.8%). The PBOC fixed the yuan at its strongest level against the dollar this morning since March last year, but CNY falls prey to some profit taking after the data.
Today’s eco calendar isn’t really inspiring with only NAHB Housing Index. We keep a close eye on risk sentiment with US stock markets on Friday eventually erasing gains eked out after strong US retail sales. Nasdaq showed the way down after Republican Senator Hawley revealed plans to try to pass a regulatory bill this week. Stock futures are again positively oriented though this morning. The mirror image is some weakness in core bonds with US Treasuries underperforming. The technical picture for the German 10-yr yield isn’t rosy following last week’s close below -0.61% key support (62% retracement of March spike). We’re keen to see whether the current cautiously optimistic sentiment helps turning the tide after the technical break. EUR/USD holds the status quo just above the 1.17 big figure. Apart from the earnings season heating up, market’s attention is focused at the end of the week with October PMIs due.
News Headlines
Labour won a landslide victory in New Zealand’s elections on Saturday. The party won almost 50% of the votes compared to 27% for the National party opposition, putting it on track for its first majority government since 1996. Labour’s campaign focused on PM’s Ardern decisive yet empathic leadership during the pandemic. She will now serve a second term. The Kiwi dollar trades almost unchanged at 0.66 NZD/USD.
Mooe UK’s credit ratindy’s cut thg by one notch to Aa3, the fourth highest ranking, citing softer ecomic growth, eroding fiscaonl strength and a weakening in institutions and governance. Even before the pandemic struck, Moody’s already warned low productivity growth, tepid business investment since the Brexit referendum and ongoing uncertainty over a post-Brexit future were weighing on the UK growth performance.
In an interview with the FT, Fed’s Rosengren warned the central bank lacks tools to prevent households and firms from taking on “excessive leverage” and called for a “rethink” of financial stability issuesin the US. His comments echo other senior Fed members including Kashkari and Brainard, who fear ultra-easy policy is building imbalances.KBC Sunrise Market Commentar.
