Markets
The start-of-the-month reflationary trade eased. The furious rally, especially in bond yields, lacked a clear trigger and is instead causing some caution among investors today as they ponder how much room for frontrunning the expected economic return to normal is left. The economic calendar eyed rather empty, with only the US ADP job report due. ADP employment grew with 307 000 in November. That’s less than the 440k expected and a deceleration from last month (404 000). The bulk of the job creation situated once again in leisure & hospitality (95 000), followed by education & health (69 000) and professional & business services (55 000). In the goods production sector, construction (22 000) rose sharply. The market reaction was muted. Equities trade about half a percent in the red. Core bonds gapped higher but erased gains intraday rather quickly to trade near yesterday’s closing lows for most of the day. Bonds felt additional selling pressure with the US joining markets however, causing the US yield curve bear steepen marginally with yields up 2.5 bps (10-yr) to 3.2 bps (30-yr). German yields gain in lockstep with changes varying from 1.4 bps (10-yr) to 1.8 bps (30-yr). Peripheral spreads tighten marginally. Spain (-2 bps) outperforms.
Apart from Scandinavian underperformance on FX markets, the pound also traded on the back foot today. The British currency fails to profit from the UK approving the Pfizer-BioNTech Covid-19 vaccin (see below), eying the Brexit negotiations instead. We warned before for the pound to become particularly sensitive to negative Brexit headlines as markets have more or less discounted a deal will be brokered eventually. EU negotiator Barnier voiced caution, saying the outcome of the talks is still too close to call, citing the well-known three key disagreements. A European diplomat said some concessions were made but came mainly from the European side of the table. This might have angered some member states. The UK Times reported countries including France are increasing pressure on Britain, saying that unless the UK compromises in the next 48 hours, the EU should declare negotiations have failed and brace for no deal. EUR/GBP jumped beyond 0.90 to trade at 0.907 currently. Cable retreated more than a full big figure from 1.34 to 1.33. As for the dollar, its decline eased today. The technical break higher in EUR/USD beyond the 1.2011 recovery high yesterday meets with some hesitation during today’s slight risk-off session. The currency pair whipsawed near yesterday’s close to change hands at 1.208 currently. The trade-weighted DXY is spared from a further decline for now after losing technical support yesterday. DXY is filling bids at 91.36. USD/JPY retreated from intraday highs, trading at 104.5 currently.
News Headlines
According to sources close to the European Commission, the rift between the EU and its member states Hungary and Poland persists with no immediate perspective on a breakthrough. Poland and Hungary exercised a veto against the EU budget and recovery fund as they object rule of law conditions that are linked to the payout of EU funds. The EU now is said to consider an alternative scenario for the EU recovery fund without the participation of Hungary and Poland. The conflict with the EU today put some pressure on the Forint (EUR/HUF 359) and the zloty (EUR/PLN 4.4850).
Britain is the first country in the western world to approve a vaccine for Covid-19. The Medicines and Healthcare products Regulatory Agency approved emergency use for the Pfizer-BioNTech vaccine. Vaccination might already start next week.
