Markets
Global investors still had to cope with a diverse news flow today, including political uncertainty in the US and the UK, mixed headlines on the US-China trade talks and multiple economic data. Regarding the later, data of individual EMU members states (Italy, France) mostly confirm the poor growth momentum as did the EC confidence indicators. However, it didn’t bother EMU investors too much. European equities succeeded a gradual but protracted uptrend before noon. Core bond yields were little changed (Bunds) to slightly higher (US). US eco data were mixed. Growth in personal/consumer spending slowed (0.1% M/M) after a strong momentum over the previous months. Price indicators of the report were also rather soft (0.1% M/M; 1.8% Y/Y for the core PCE deflator). Headline durable orders were stronger than expected, but sub-indicators painted a mixed picture. Markets mainly reacted to the miss in the spending data. US yields returned part of this morning’s (albeit modest) rise. There are still plenty of headlines on the political developments/investigation against US president Trump, but for now the direct market impact is limited. US yields are currently 1-2 bp higher. German yields are mixed/little changed with the ultra-long end (30-y) underperforming (+2.2 bp). Moves of intra-EMU spreads versus German are also very small (less than 2 bp).
On the FX market EUR/USD filled bids below the 1.0926 previous low. However, the move still lacked further follow-through momentum, despite ongoing soft EMU data. The pair initially hovered on the low 1.0910/30 area. The dollar later lost modest ground after the US spending data. EUR/USD currently trades in the 1.0935/40 area. USD/JPY was somewhat of an outperformer versus the likes of USD/EUR. The pair tries to regain the 108 barrier.
Over the previous days sterling lost its upward bias and fell prey to modest profit taking as the political chaos in the UK intensified and as investors didn’t see any improvement on the way to an orderly Brexit. Today, the UK currency met even stronger headwinds from the BoE. BoE’s Saunders indicated that the central bank might have to cut rates, even in case of a Brexit deal, as uncertainty might continue to weigh on UK growth even in the scenario of an orderly Brexit. Saunders’ comments clearly strike a much more dovish tone compared to ‘mainstream’ communication of the BoE on its reaction function with respect to Brexit of late. Sterling selling accelerated. EUR/GBP jumped the high 0.88 area, but pressure on the UK currency eased later. EUR/GBP is currently trading in the 0.8875 area. Cable is changing hands near 1.2320.
News Headlines
US Speaker of the House Nancy Pelosi said that Trump’s actions have shown disloyalty to his oath of office by “jeopardizing our [the Democrats’] elections”. She also accused the Justice Department of heading toward “a cover-up of the cover-up”, adding that Attorney General Barr went “rogue”.
Oil dropped further today after Saudi Arabia agreed a partial cease-fire in Yemen. Houthi forces in Yemen already declared a cease-fire last week, days after claiming responsibility for the attack on Saudi oil infrastructure. WTI oil is currently trading at $61.5/b after surging to $72 in the aftermath of the drone strike.
