Markets
Global core bond trading was mainly driven by investor sentiment. Investor caution prevailed in the run-up to the long-awaited meeting Trump-Xi meeting. If anything, the eco news flow should be considered as bond supportive with the Italian Q3 GDP downwardly revised into contraction territory. EMU core inflation also slightly missed market expectations as core inflation eased from 1.1% to 1.0% in November. So, at least for now, there is no reason for markets to front-run on any ECB policy tightening. The German yield curve bull flattens with 10/30-yr yields declining 1.2 bps. German bunds still slightly underperform US Treasuries despite soft eco data, probably as the 10-y German yield is nearing key support in the 0.30% area. US yields are declining up to 2 bps with the 10-yr slightly outperforming. Intra-EMU 10-yr yield spread changes versus German bunds are negligible.
The dollar traded with a tentative positive bias today. The repricing after Wednesday’s perceived soft comments from Fed chairman Powell has apparently run its course. Global (equity) markets apparently took a cautious approach ahead of tomorrow’s meeting between US president Trump and Chinese president Xi Jinping. This investor caution slightly favours the dollar. On the euro side of the equation, a slightly softer than expected EMU November (core) CPI also dampened investors’ appetite to build on the post-Powell EUR/USD rebound. The pair lost slightly ground after the CPI release. The dollar also profited from a strong Chicago PMI. EUR/USD trades currently in the 1.1350 area. The yen again doesn’t profit from global investors caution. USD/JPY follows the broader intraday USD rebound. The pair trades in the 113.55 area.
EUR/GBP basically hovered sideways today in a relatively tight range in the 0.89 area. EUR/GBP revised stop highs in the 0.8920/25 area, but a real test of the 0.8940 resistance didn’t occur. Trade Secretary William Fox supported his PM and asked party members to support the Brexit deal. However, sterling traders clearly didn’t see this as meaningful factors in solving the Brexit stalemate. EUR/GBP is trading close the 0.89 pivot. Cable (1.2770 area) is losing a few ticks, but this is a USD move rather than a sterling move.
News Headlines
Eurozone headline inflation slowed in November to 2.0% from 2.2%, as expected, as the rise in energy prices and unprocessed food eased. However, the core inflation also unexpectedly declined from 1.1% to 1.0%. So, for now, the jury is still out whether inflation will accelerate toward the 2% target as the ECB prepares to reduce monetary stimulus.
Italian GDP contracted (0.1% Q/Q) in Q3, the first quarterly decline since Q2 2014. Y/Y-growth was also downwardly revised from 0.8% Y/Y to 0.7% Y/Y. Weak consumer spending and investments were to blame for the poor growth performance.
India’s Q3 growth slowed in the July-September period from 8.2% Y/Y to 7.1% Y/Y. The market expected a more modest slowdown (7.5% Y/Y). With growth slowing down, the RBI is expected to hold its policy rate unchanged at 6.50-à )) after tightening policy earlier this year as inflation is also slowing down.
