- European equities and US equities trade little changed on the day. The Spanish IBEX35 and NASDAQ are outperformers. The former on a poll showing the pro-independent Catalan parties would lose their majority; the latter in follow-through gains after stellar earnings reports of tech bellwethers.
- Spain’s public prosecutor has accused the entire Catalan government of rebellion, sedition and misuse of public funds as Madrid moved swiftly to re-impose its authority on the breakaway region. He calls for charges to be brought against the Catalan rulers that could lead to trials, which may prevent them from running in regional elections.
- Economic confidence in the eurozone surged to its highest level since 2001 this month, to extend the bloc’s surprisingly robust recovery this year. The uptick was driven by strength across the economy driven by industry, retail and construction and was the 14th consecutive monthly rise.
- UK consumer lending rose at a rapid pace last month, underlining concerns that lenders could face losses in the event the British economy deteriorates. The latest lending data showed UK consumer lending rose 9.9% Y/Y in September, hovering around the 10% level it has maintained since June.
- Autumn is welcoming the Swiss economy with a tailwind, according to the Kof’s economic barometer. It hit its highest level in more than seven years to reach 109.1 points in October. Consensus stood much lower at 105.5.
- The eurozone-wide recovery outweighed any impact from domestic political uncertainty on Spain’s economy in Q3, with growth continuing at a healthy pace. GDP increased 0.8% Q/Q (3.1% Y/Y), down slightly from 0.9% Q/Q in Q2. Belgian GDP grew by 0.3% Q/Q following 0.5% Q/Q in Q2.
- Paul Manafort, a former campaign manager for Donald Trump and a business partner were charged with conspiracy against the US, the first people charged in the broad investigation into Russian meddling with the U.S. election
- German HICP inflation fell unexpectedly by 0.1% M/M to be up 1.5% Y/Y in October, down from 1.8% Y/Y in September and defying expectations for a more modest decline to 1.7% Y/Y. It suggests that the EMU inflation, to be reported tomorrow, will surprise on the downside too.
Rates
Catalan pro-independence bloc loses in poll
Global core bonds traded with a very small upward bias in this week’s opening session. The eco calendar was unusually busy for a Monday, but didn’t leave traces on bond trading. EMU eco data printed mixed with a multiyear high for the EC’s confidence indicator, but a big disappointment in German inflation readings (1.5% Y/Y from 1.8% Y/Y). US eco data (personal income/spending and PCE) were very close to consensus, but that shouldn’t surprise as Q3 GDP numbers were already released last Friday.
At the time of writing, the German yield curve flattens with yield changes ranging between +1.4 bps (2-yr) and -1.7 bps (30-yr). The belly of the US yield curve (-1.5 bps) slightly outperforms the wings (flat). From a technical point of view, the US 10-yr (2.42%) and US 30-yr (2.95%) yields are back below key resistance levels following last week’s intense, but failed, test. On intra-EMU bond markets, 10-yr yield spread changes versus Germany are narrowly mixed with a significant outperformance of Portugal (-10 bps), Spain (-7 bps) and Italy (-9 bps after S&P upgrade). The Spanish outperformance is related to an El Mundo poll whish showed that the pro-independence bloc would lose its majority in new Catalan elections.
The Italian debt agency tapped the on the run 5-yr BTP (€2.5 bn 0.9% Aug2022) and 10-yr BTP (€2.5 bn 2.05% Aug2027). The combined amount sold was the maximum of the €4-5 bn on offer with a 1.48 auction bid cover which is in line with average. S&P’s rating upgrade on Friday night (to BBB) couldn’t give an additional boost. Apart from the regular BTP’s, the Italian debt agency also launched a new floating rate bond (€3.5 bn Apr2025).
Currencies
EUR/USD stabilizes after weak German inflation
EUR/USD tried to fight back after an uneventful sideways oriented overnight session and a shy attempt of the dollar to extend its rally for a third day in a row. The dip lower in EUR/USD met renewed euro buying in albeit thin market conditions. EUR/USD recouped opening levels around 1.1610 and powered ahead to the 1.1640 area where resistance kicked in and a pause materialised. The start of the up-move had no distinct trigger, but stronger German retail sales and 17-yr high euro area economic sentiment were of course underlying euro positives. Lower-than-expected German states’ inflation was less positive, but ignored. After US traders joined the fray, the euro’s going got tougher. The 1.1644 high remained too tough to break and the pair gradually slid lower. When the overall German inflation was reported much lower than expected, EUR/USD dropped instantaneously to 1.1610 opening levels. There was no follow through euro selling though, allowing the pair to stabilize. US personal spending was, as expected, very strong, while PCE deflators were in line with expectations. It had little impact. Similarly, the indictment of president Trump’s former campaign chair, Mr. Manfort, didn’t weigh on the dollar.
USD/JPY had an uneventful session today, after failing to take out major resistance at 114.45 on Friday. There was no attempt to give it another try. The pair traded listless in the 113.50/80 range. In early US dealings the pair briefly moved to 113.40, maybe a shy reaction to the FBI indictment of Paul Manafort,. However, the dollar decline never went far and the pair trades currently at 113.50, a minor 23 tick daily loss. Equity trading was also mostly sideways and in any case showed insufficient firm direction to affect the cross. Neither did yields.
Sterling makes further headway ahead of BoE meeting
Sterling is already for some days in a positive flow and that continued today. After an uneventful morning session, sterling caught a bid. We signaled that technicals improved and a modest double top formation in EUR/GBP could send the pair towards the key supports at 0.8743/0.8652. We didn’t see any trigger that caused today’s sterling buying, but suspect that rate expectations ahead of Thursday’s BOE meeting and the technical picture played a role. Once the ball got rolling, lower than expected German inflation weakened the euro overall. EUR/GBP slid from 0.8840 at noon (CET) to an intraday low at 0.8790 after the German inflation release and is at the moment of writing quoted around 0.8807. Cable moved already higher in the morning session in sympathy with a temporary EUR/USD up-move. It made some more headway in the afternoon session despite a dip in EUR/USD. Cable trades now at 1.3190, up from opening levels around 1.3130.
