Markets

Recent volatility on FX and FI markets eased today. There was little economic or political news to guide trading. Instead, markets focused on the meaningful vote in UK parliament on Saturday, resulting in guarded, (very) low-volume and technical trading. Equities erased early, yet limited, gains as American investors started to enter. On the bond market, UST’s outperform the Bund. The US yield curve barely moved with yield changes varying from -0.7 (2-yr) to +0.2 bps (10-yr). The German yield curve bear steepens with yields rising 0.5 bps (2-yr) to 2.7 bps (10-yr) over 2.9 bps (30-yr). Most peripheral spreads are unchanged but Greece (-10 bps) outperforms strongly for no clear-cut reason. EUR/USD holds up pretty well despite lingering Brexit uncertainty. The currency pair is filling bids in the 1.114 area, up from 1.1120. Japanese yen cross rates learn there’s also some dollar weakness involved. USD/JPY slipped below 108.50.

The pound too got trapped in technical trading ahead of tomorrow’s crucial vote. The DUP again confirmed it will oppose the deal, adding that talks with the government are ongoing. In fact, PM Johnson is holding talks with MP’s from all sides to secure votes, a spokeswoman said today. But should parliament reject the agreement, a Brexit extension becomes unavoidable, according to Germany’s Merkel. French president Macron voiced opposition however. But even if the EU agrees to a delay, it is unclear whether PM Johnson would ask for one. Sterling initially eked out some marginal gains during early European hours on BoE Ramsden’s comments. The Bank of England Deputy Governor said that a smooth Brexit would put rate hikes back on the table because it would produce a pickup in investment and bolster demand while regular pay gains are still pointing to domestic inflationary pressure. Ramsden’s hawkish message is notably out of sync with recent speeches from Saunders and Vlieghe and had a temporary impact on the pound anyway. EUR/GBP is currently trading at 0.865, close to unchanged vs. yesterday’s close. Cable is also hovering near opening levels close to 1.29. Sterling is paralyzed and there is little that it can do but to wait for tomorrow’s outcome.

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News Headlines

Russian central bank governor Elvira Nabiullina said today that the Russian central bank is ready to act “more decisively” when cutting interest rates, thereby hinting that the bank’s key rate will likely be cut by more than 25 bps at its monetary-policy meeting next week. The Rubble is holding steady near EUR/RUB 71.32.

Acting White House chief of staff Mick Mulvaney effectively admitted that President Trump offered Ukraine a “quid pro quo” for delivering the US military aid. Trump and administration officials have been denying the act for many weeks, as it forms a key part of the controversy that has triggered an impeachment inquiry in the House of Representatives against the US president.

German Finance Minister Olaf Scholz warned his EU counterparts against further escalating tensions with Washington after the US began imposing a range of punitive tariffs on $7.5 billion of European goods, which took effect today. Scholz said that EU officials are trying to work out a trade agreement with the US to avert threatened tariffs.

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