- Most European equity markets eke out small gains today with the German Dax underperforming (-0.2%). US stock markets opened flat. US trading is expected to slow down ahead of Thanksgiving and Black Friday.
- UK Treasury chief Hammond presented gloomier forecasts for the economy and government finances in a budget address to parliament aimed at boosting the country’s feeble productivity as well as his own political fortunes.
- US business equipment orders unexpectedly fell in October for the first time in four months (-1.2% M/M) even as a gain in capital goods shipments (+0.4% M/M) pointed to steady investment growth, Commerce Department figures showed. Weekly jobless claims declined in line with forecasts from 249k to 239k.
- Pressure is mounting on Germany’s Social Democrats to join Chancellor Merkel in a revived alliance and end the impasse threatening political stability in Europe’s largest economy.
- Top crude exporter Saudi Arabia is lobbying oil ministers to agree next week on a nine-month extension to OPEC-led supply cuts, sources familiar with the matter said, as Riyadh seeks to ensure a price-sapping glut is eradicated.
- The national budgets of six euro zone countries may break EU deficit rules next year, the EC said, issuing what has become a frequent plea for governments to stay within the limits. For 2018, the draft assumptions of Belgium, Italy, Austria, Portugal, Slovenia and France posed a risk of not cutting the structural budget gap fast enough.
Rates
Core bonds mixed (US) to marginally lower (Germany)
In an uneventful pre-Thanksgiving session, core bonds showed no directional bias. There were no EMU eco data, while the US durable orders were mixed. The headline figure disappointed, but the measure excluding the volatile transportation was stronger than expected. Similarly, the capital goods orders were weaker (after a strong September month) but the shipments were stronger. The report suggests that equipment investment continued to expand at fast clip in Q4. However, the report had little lasting impact. US Treasuries evolved in a tight range with the curve slightly steeper, likely due to mild profit taking on past flattening. The German curve bear flattened slightly. While the intra-day curve moves were a bit erratic, the steepening might have been due to comments of ECB Coeuré. He said he expects "interest rate guidance to gain importance over time, up to a point where" it would be possible to delink it from the end of net asset purchases. This suggests that the first rate hike might come faster than hitherto expected by many market participants. All in all moves were technically insignificant.
At the time of writing, the US yield curve steepened slightly as yield changes varied between -1.5 bp (2-yr) and +1.2 bp (30-yr). German yields bear flattened with yields down 0.4 bp (30) to up 1.5 bp (2-5-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany were flat (semi-core) to marginally narrower (-1 to -2 bp) for the peripherals.
Currencies
USD/JPY stays under pressure. EUR/USD going nowhere
There was again no obvious story to guide USD trading. The euro was temporary supported by a slight narrowing in the US/EMU interest rate differential, but the gain could not be sustained. US data were close to expectations with little impact on the dollar. EUR/USD still trades in the 1.1750/60 area. USD/JPY remains in the defensive and struggles (111.85).
Overnight, The WS equity-rally continued in Asia, with several regional indices reaching a cycle top. Even so, the USD dollar remains in the defensive. USD/JPY (112.10) drifted again south despite good gains of Japanese equities. EUR/USD traded little changed in the 1.1750 area.
There were no data in EMU. European equities underperformed the rally in Asia and the US. The dynamics in the bond markets was slightly different from the previous days. Core bonds declined slightly and the interest rate differentials between the dollar and the euro narrowed slightly in favour of the single currency. EUR/USD jumped temporary to the 1.1770 area, but the incentives from other markets were not strong enough to cause any sustained move.
The US jobless claims were close to expectations. The US durable orders report was mixed. October orders were weaker than expected, but the September data were upwardly revised. At the same time, capital goods shipments were stronger than expected. The dollar lost marginal ground after the data. USD/JPY holds near the intraday lows. The pair trades near 111.80/85. EUR/USD (1.1775) also returns higher in the intraday range.
Sterling in consolidation modus
There were no UK eco data today. Evidently, there were still plenty of political comments on Brexit. Ireland’s Minister Coveney said that the UK controls the odds for a Brexit breakthrough. UK PM May repeated that she doesn’t want a hard Ireland border. However, there were no concrete indications of progress on the specific Brexit issues.. Sterling basically followed the broader swings in the euro and the dollar going into the budget announcement of UK Fin Min Hammond. Hammond said that the government set aside £ 3bln for Brexit preparations. The UK government also wants to use some of the fiscal room to invest, to support public services and keep taxes low. However, Hammond didn’t bring any prospect of a substantial fiscal stimulation. The OBR also reduced the growth forecasts for the coming years, but this was no surprise. Sterling ceded temporary ground during Hammons’s statement, but the move was soon reversed. EUR/GBP trades currently in the 0.8865 area. Cable drifted back to the 1.3220 area, but also reversed the intraday dip (currently 1.3270 area). In a broader perspective, sterling holds recent sideways consolidation pattern.
