There was little high profile/concrete news to guide trading on global markets today. The Brexit negotiations were a prominent feature in the headlines on the financial newswires. In line with previous days, comments from both sides indicated at least mutual good-will to reach a deal, if possible even already this week. However, for now, the news flow wasn’t concrete enough for investors to further anticipate a positive outcome. There was also little concrete news from the US China trade talks after both parties only delivered an incomplete framework at a high level talks last week. Global (European and US) equities maintained a positive bias as first Q3 earnings in the US were reported. Global bonds and FX show a mixed, indecisive picture. The German yield curve is almost unchanged in a daily perspective. German ZEW investor confidence was weak as expected. The current conditions index still deteriorated further, but the expectations component declined less than feared. US yields decline about 1.5 bp (2-5-10-y). 30-y underperforms (+0.2bp) as US bond market trading resumes after a long weekend in observance of Columbus Day. 10-y intra-EMU spreads versus Germany are little changed with Greece and Ireland slightly outperforming (-3 bp).
Moves in EUR/USD and USD/JPY were mostly technical in nature. USD/JPY drifted sideways, awaiting more news on global topics/event risks like Brexit or the trade talks. EUR/USD drifted gradually lower throughout the day. We didn’t see a special reason for the move. ZEW confidence wasn’t that bad and constructive developments regarding Brexit in theory should be euro supportive. Even so, EUR/USD dropped back to the 1.10 previous resistance area. Dollar strength is probably at play.
Sterling maintained a cautiously positive bias and is testing the strongest level against the euro in about five months as investors see a growing chance that a Brexit deal is still possible ahead of the 31 October deadline. EU’s Barnier said that an agreement is difficult but possible. France also delivered positive comments on UK proposals. Negotiations are said to focus on the relationship of Northern Ireland vis-à-vis the EU customs union. In a speech, BoE Vlieghe indicated that more policy stimulus might be needed if uncertainty on Brexit were to persist. Evidently, these comments were ignored as markets see a rising chance of a Brexit deal. UK September labour data were also weaker than expected, but with a similar market reaction. Cable currently trades in the 1.2630 area.
UK labour market data were a mixed bag. The unemployment rate unexpectedly rose from 3.8% to 3.9%, but remains near multidecade lows. Vacancies data continue to fall though, suggesting a further increase is possible in coming months. Weekly earnings ex bonuses rose by 3.8% Y/Y (from 3.9% Y/Y) which means British consumers still see a decent rise of their disposable income (inflation rate 1.8% Y/Y). Employment change delivered a big blow to the data though with a 56k drop in employment vs consensus expectation of a 26k rise.
German ZEW investor sentiment fell more than expected in October, from -19.9 to -25.3. The ZEW hit its lowest level since 2010 and is near constant decline since September 2018. ZEW President Wambach said the recent settlement in trade dispute between the US and China didn’t seem to diminish economic skepticism. On a positive note: the forward looking “expectations” component moderated near September levels while consensus expected a further fall as well.