Global core bonds gain ground today as risk sentiment deteriorated. German Bunds and US Treasuries both edged higher. Equity indices around the world continue yesterday’s move south. Several factors may be at play. The US dollar has been strengthening since the US midterm results. The S&P index tried to break through the 62% retracement but failed, dragging other equities with it. Oil prices perish a global correction. Enough to put investors on edge, especially with the long weekend ahead (Veterans’ day). Exchange markets are open though. All factors in play pushed some safe haven flows into the bond market. US Treasuries paired some of its intraday gains as PPI’s proved very solid supporting the Fed’s gradual rate hike approach. There was no EMU data, but the Bund outperformed. The German yield curve declines with changes from -1.8 bps (2-yr) to -2.9 bps (10-yr). The US yield curve edges lower with the belly of the curve underperforming the wings. Changes range from -0.8 bps (30-yr) to -1.5 bps (5-yr).Peripheral yield spreads versus Germany widen with Greece (+8 bps) and Italy (+6 bps) underperforming. Italy’s credit spread heading back to 300 bps.

USD trading was at the mercy of global risk sentiment today. Yesterday’s Fed policy decision was very close to expectations. However, at least part of the market maybe hoped that the Fed would have given a bit more weight to the recent up-tick in market volatility. However, for now, there are few signs that the Fed will provide such a ’put option’ anytime soon. US/Fed interest rates will probably remain on an upward trajectory. US yields held close to recent highs, the dollar extended its post-election rebound and risk assets came under further pressure. The trade-weighted dollar is again nearing the recent top in the 97.00 area. In EUR/USD, the 1.13 range bottom also is again on the radar. However, with no really important eco data on the agenda, there was no strong enough driver for the dollar to challenge those technical levels. US PPI were higher than expected, but had little impact on the dollar. The market focus is on next week’s US CPI data. EUR/USD trades currently in the 1.1350 area. The risk-off sentiment prevented further USD/JPY gains. However, the pair also stays within reach of the 114 barrier.

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There were plenty of UK eco data including the Q3 UK GDP today. UK growth reaccelerated to a solid 0.6% Q/Q and 1.5% Y/Y. However, details/other evidence suggest that growth will very likely slow in the last quarter of the year. For now, the report also doesn’t change the expected rate bath of the BoE. Sterling hardly reacted to the report. The focus remains on the ‘final’ stage in the Brexit negotiations. Over the previous days, sterling profited from an avalanche of political headlines that a Brexit deal might be reached in the very near future. This talk continued today, but it didn’t cause any further sterling gains anymore. EUR/GBP shifted into wait-and-see modus awaiting potential new developments in during the weekend or early next week. EUR/GBP trades in the low 0.87 area.

News Headlines

Norwegian headline inflation slowed in October from 3.4% YoY (0.6% MoM) to 3.1% (-0.2%). Core measures showed a similar slowdown from 1.9% YoY to 1.6% YoY. The data suggest the country’s central bank should be in no hurry to raise rates for the second time since 2011. The Norwegian koruna lost ground as markets buried any expectations for an early December hike.

Oil prices entered bear market territory, extending their 10 day losing streak while mounting losses up to more than 20%. After peaking mid-October, prices dropped after supply concerns eased following US sanction waivers to big Iranian oil importers while Saudi, Russian and US shale oil production more than compensate any Iranian outfall. Brent and WTI crude is trading respectively close to $70/barrel and $60/barrel.

US PPI came in stronger than expected in October, touching  the highest in six year. Headline PPI increased 0.6% MoM. vs. a 0.2% MoM expected. Core PPI, excluding food and energy, increased 0.5% MoM vs. 0.2% anticipated.


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