Markets
Markets made a step backward after the constructive reaction to a disappointing US payrolls on Friday. The hope on a bipartisan stimulus bill is alive as talks continue, but only at a snail’s pace. Congress preparing a one-week stopgap bill to avoid a government shutdown will take time to reach a compromise between the broader approach of the Democratic party and the more specific, targeted approach of the Republicans. In a session deprived of key eco data, core yield curves (correctively) bull flattened with US yields reversing a (big) part of Friday’s surprise rise. US yields eased between 1 bp (2-y) and 5.5 bp (30-y). German yields show a similar move with yields losing 1.2 bp to 3.6 bp. Growing uncertainty/multiple negative headlines on the Brexit negotiations didn’t help the broader sentiment but we didn’t have to impression that it was a major driver for markets outside the UK. US equities ended the session mixed with the Dow losing 0.49% but the Nasdaq rising 0.45%. The setback in financials and energy stocks and the oil rally running into resistance also illustrated hesitation in the risk rally. After a protracted downtrend and a break of key support levels last week, the dollar yesterday was also in search of a clear direction. An early intraday USD rebound was again reversed later in the session, resulting in only marginally stronger USD levels registered in the likes of the DXY index (91.79) or EUR/USD (close 1.2109). The UK currency initially was haunted by a growing number of negative headlines on the persistent stalemate in the UK-EU talks on a post-Brexit agreement. EUR/GBP initially jumped to the 0.9140 area, but sterling later got some reprieve as UK PM Boris Johnson and EU Commission president Ursula von der Leyen committed to face to face talks to try to reach an eleventh hour solution. EUR/GBP closed the day 0.9050.
This morning, Asian equity markets mostly trade with moderate losses. Rising corona infections with potential further negative impact on activity and uncertainty on the policy response is keeping markets in a cautious holding pattern. An upward revision to the Japan Q3 GDP (5.3% Q/Q) and the government delivering on fiscal package are mildly positive intraday, but no game-changer. USD/JPY is going nowhere in the 104 area.
The calendar contains the final EMU Q3 GDP, German ZEW investor sentiment and NFIB small business confidence in the US. We expect the reflation trade to move to a holding pattern as markets await the (US) fiscal policy response. Bond markets also look forward to the ECB and Fed policy meeting later this week and next week. Even after yesterday’s correction, the uptrend in LT US yields remains intact, but probably it’s too early for a real test of the 0.97%/1.0% barrier. The German 10-y yield even nears the -0.60% intermediate support in the run-up to the ECB meeting. The dollar decline took a breather, but for now EUR/USD still keeps the 1.2175/78 ST top within reach. Some further consolidation is possible, but we expect the 1.2011 previous top to already provide solid support. Labelling the negotiations between PM Johnson and Ursula von der Leyen a wildcard and a binary risk, is kicking in an open door. Despite recent comments, even from this point, one cannot exclude some further ‘kicking the can down the road’ approach. In this scenario EUR/GBP can continue nervous trading north of 0.90.
News Headlines
Japanese PM Suga announced an anticipated stimulus programme, worth ¥73.6tn ($708bn) overall. Fiscal measures in the package amount to ¥40tn with details expected later today. “In order to protect the lives and livelihoods of the people, this package has been compiled to maintain jobs and businesses, restore the economy, and develop new opportunities for growth like green and digital areas,” Suga said. It’s Japan’s third fiscal package this year. Japanese data this morning showed amongst others an upward revision to Q3 GDP (22.9% Q/Qa from 21.4% Q/Qa)
The British Retail Consortium (BRC) reported that total retail sales growth slowed to 0.9% Y/Y in November from 4.9% Y/Y in October, showing the effect of a four-week closure of non-essential stores. Like-for-like sales, which include online retail, rose by 7.7% Y/Y. It shows that retailers, more than during the first lockdown, adapted their businesses via digital platforms and click-and-collect sales.
