- European equities opened soft, but soon found the way north again. Most indices show gains of 0.5% or slightly more. US equities join the risk-on trade, opening with gains just below 0.5%
- Turkey’s central bank has decided to provide all funding from its late liquidity window effective Wednesday, which will raise the weighted average cost of funding by 25bps, according to a central bank official who asked not to be named, citing policy.
- The National Bank of Hungary kept its main policy rate and overnight deposit rate unchanged at respectively 0.90% and -0.15%. The Bank took some additional measures to keep monetary conditions easy at the long end of the curve.
- EU regulators have decided to give large euro zone banks up to four years to raise capital buffers, a source told Reuters, setting for the first time binding requirements that some lenders might find difficult to meet.
- Britain’s Brexit minister Davis said that reaching a deal with the European Union was the most likely outcome of talks, but added that the British government was prepared for no agreement with the bloc.
- UK manufacturers reported the most robust demand since 1988 according to the latest survey by the Confederation of British Industry. The CBI data are the latest to indicate rising activity in British factories in recent months, as solid global growth figures and the continuing weakness of the pound have helped support UK industry.
- Czech police have requested parliament lift the immunity of prospective prime minister Andrej Babis to allow prosecution in a case involving alleged fraud in tapping European Union subsidies, the lower house’s press office said.
Rates
Core bond curves continue to flatten.
The main theme in core bond markets was the ongoing flattening of the curve with the very long end the eye-catcher. Traders are likely front running the slowing of supply and riding the curve (carry). There were no obvious drivers to explain the moves that occurred in thin trading conditions. The Chicago Fed National Activity index for October was much stronger than expected, confirming the upbeat data flow of recent. However, the report is based upon a large number of other data and thus doesn’t bring new info. After the closure of our report, the US Existing Home sales will still be published and ECB Coeuré participates at a panel discussion, but we don’t expect these to give much direction. European equities had a strong unidirectional run higher, while core bonds showed intra-day volatility, confirming the weak/missing intra-day (inverse) correlation. The potential inverse correlation with oil was missing too.
At the time of writing, the US yield curve flattened today with US yield changes varying between +0.9 bp (2-yr) and -2.4 bps (30-yr). German yields dropped 0.7 bp (2-yr) to 3 bps (30-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany ranged between -1 bp and 3 bps (Spain) with Greece underperforming (+5 bps). Intra-EMU bond trading was again lackluster and devoid of particular drivers. France is doing well and outperforming Belgium in a multi-day perspective.
Currencies
EUR/USD extends gradual decline
In technical trade, the dollar gained slightly more ground as interest rate differentials widened again slightly in favour of the US currency. There were no eco data of importance. EUR/USD drifted lower in the 1.17 big figure. Sentiment on risk remained positive, but again didn’t weaken the yen. USD/JPY even lost marginal ground as core bond yields declined.
Overnight, most Asian equity indices showed decent gains, with China outperforming. Even so, the positive risk sentiment again didn’t help USD/JPY. The pair stabilized in the mid 112.50 . The dollar also lost a few ticks against the euro. EUR/USD traded in the mid 1.1750.
There were no eco data in EMU. European equity markets opened hesitant, but gradually joined the Asian risk rally. Core European yields declined and rate differentials between the US and Europe (Germany) widened further. EUR/USD drifted further south in the 1.17 big figure . USD/JPY didn’t go anywhere, holding stable in the mid 112 area. Trading developed in thin market conditions.
There was also no important US eco news. Core US/German yields moved more in lockstep during the US trading session. The dollar smade some further minimal gains against the euro. EUR/USD trades in 1.1725 area. USD/JPY is losing a few ticks, changing hands in the 112.35 area. Ongoing low core yields keep the yen relatively attractive against the euro and the dollar.
Sterling rebound slows
Sterling trading entered calmer waters and moved sideways today. British media reports reiterated that the UK government agreed to offer a higher amount in Brexit negotiations to settle the Brexit bill. This was a slightly positive for sterling yesterday. However, it is still unclear when and under what conditions the UK will make its proposition. The UK eco data were mixed today. The monthly UK budget deficit was higher than expected, but CBI orders were very strong. Several BoE members testifying before a Parliamentary Committee maintained a balanced approach and indicated that gradual policy tightening was likely needed to control inflation during the policy horizon. EUR/GBP basically held a sideways range in the mid 0.88 area. Cable shows no clear trend an trades in the 1.3245 area.
