Markets
The euro snapped a six-day losing streak against the dollar. It was one of the more remarkable observances during a relatively quiet session since fragile stocks (-0.5% in Europe, mixed in the US) and Bund outperformance suggested otherwise. German yields fell 1.9 bps (2y) to 5.1 bps (30y) compared to changes in the US ranging from +0.3 bps to -1.1 bp across the curve. We do note real yield dynamics played in favour of the single currency (+4 bps in 10y). TIPS in the US outperformed after the US Treasury sold 10y inflation-linked bonds at a record low yield of -1.145% (0.4 bps below WI) with dealers awarded a record-low share of the sale. EUR/USD rose half a big figure from 1.132 to 1.137. Technical considerations played their part as well. The dollar hit several resistance levels which hampered its upward momentum. The trade-weighted dollar (DXY) eased from 95.83 to 95.54. Sterling took a breather after the recent rally, fueled in part by strong labour data and higher-than-expected CPI. EUR/GBP clawed back above 0.84. GBP/USD tested the 1.35 big figure on dollar weakness but closed just south eventually.
Overnight news includes Japanese CPI in October rising by 0.1% y/y. Core inflation turned more negative again, coming in at -0.7% (from -0.5% in September). The yen couldn’t care less. Japanese stocks gain a small boost from PM Kishida announcing the 56tn yen fiscal support floated by newspaper Nikkei already yesterday. China’s PBOC warned against one-way bets on the yuan after a trade-weighted gauge hit a six-year high. USD/CNY is broadly unchanged. The euro’s uptick is already melting. Core bonds show little direction.
There’s another flurry of high-profile speeches by members of the Fed, ECB and BoE scheduled for today. They are a wildcard to trading. US politics take center stage with a House vote due on Biden’s $1.75tn bill (cf. infra). On a related note, the discussion on raising the debt ceiling is once again gaining traction. USTS Yellen expects the limit to be hit soon, which will leave the Treasury unable to finance the government after December 15. Bills maturing beyond this X-date have started to rise in recent days. This increased uncertainty is not emerging as an actual dollar negative at this stage. EUR/USD trading today will remain largely technical in nature. In this respect, yesterday’s rise was meaningless. First resistance is situated at 1.1422 but for the ST downside alert to be actually called off, the pair has to take out 1.153 first. The UK finishes its economic update with a bang as (core) retail sales crushed estimates. Sterling is a bit hesitant in early European dealings, keeping north of EUR/GBP 0.84. We wouldn’t be surprised by another attack of that big figure later in the session though.
News headlines
The US House will today vote on the centerpiece of US President’s Biden agenda, the $1.75tn Build Back Better bill for education healthcare and climate. Democratic House leader Pelosi presses ahead with a vote after the Congressional Budget Office provided the estimated cost of the package. The latter was quid pro quo for several moderate Democrats. The CBO projects that the bill would result in a net increase in the deficit totaling $367bn over the 2022-2031 period and added that the figure didn’t include any additional revenue ($127bn) that may be generated by additional funding for tax enforcement. US Treasury Secretary Yellen even stated that the BBB bill is fully paid for as the Treasury estimates at least $400bn in additional revenue after upgrading the internal revenue service. The bill is expected to pass the House on a party-line vote, but then faces a more daunting challenge in the 50-50 split Senate.
The Norges Bank yesterday announced that from today it will reduce its daily FX sales (NOK purchases) on behalf of the government from the equivalent of NOK 700mn to zero for the remainder of the month. The change is due to a reduced need for transfers from the GPFG (sovereign wealth fund) to the government because of a larger-than-expected net cash flow from the petroleum sector. EUR/NOK rebounded from 9.9 to 10, the highest level since October. The move came despite rebounding oil prices. Brent crude closed near $82/b after bouncing off $80/b support.
