This morning’s upbeat assessment by Fed chair Powell, followed by the news that the US and China agreed to continue phase 1 trade talks failed to lift market sentiment. The risk on rally sputters with investors wanting action rather than just another “constructive phone call”. A series of US data showed the October goods trade deficit narrowed to the lowest in more than a year. But that’s solely the result of plunging imports rather than a rise in exports. In fact, the latter also eased marginally. US house prices snapped a long series of ever slowing price increases that started early 2018 in a sign that the Fed’s rate cuts are sorting effect. September data printed at 2.10% y/y (or 0.36% m/m) vs. 2.02% in August. Non-voting Dallas Fed governor Kaplan echoed Powell today, saying monetary policy is in a right place and a material outlook change would be needed to move rates in one way or another. Both US Treasuries and the German Bund held an upward bias throughout the day, mainly because it is the safest thing to do while waiting on further progress in trade. The US yield curve bull steepens with yield changes varying from -3.3 bps (2-yr) to -1.9 bps (10-yr). German yields slip -1 bp at the short end of the curve up to -2 bps at longer maturities. Peripheral spreads widen slightly with Greece and Italy underperforming (+3 bps). The trade fatigue is especially visible on currency markets. EUR/USD literally went nowhere, filling bids at 1.1015, “up” from 1.1014. The yen held near recent lows with USD/JPY oscillating around opening levels at 109.

Sterling had a minor off day. Investors have long been betting on a solid victory for the Conservative Party at the December 12 elections. But today’s polls suggest that they shouldn’t discard the biggest opposition party, Labour, that easily. A Reuters/ICM survey showed support for the Tories falling to 41% (vs. 42% in the last poll) while Labour is catching up at 34% (vs. 32% previously). The results are a reminder to 2017 when Theresa May’s call for early elections ended in a hung parliament. They also woke a somewhat complacent yet still strong pound. EUR/GBP strengthened from 0.853 to 0.856 currently. Cable went from 1.29 to 1.286 at the time of writing.

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Turkish president Erdogan renewed his push for monetary stimulus and urged the country’s central bank to continue cutting rates. The Turkish central bank has been on an aggressive easing cycle since July following a slide in inflation and slashed its policy rate from 24% to 14%. Erdogan’s call comes after the Turkish central bank signaled that its easing cycle was coming to an end.

The EU has put Greece back on the list of “marketable risk” countries as of 1 January 2020. “As of 1 January 2020, short-term export credit risks toward Greece will be considered as marketable to be covered by private insurers,” the statement said. The move comes after Greece adopted reforms agreed with euro zone creditors after completing its bailout program in August 2018. Greece is appearing to make its return to the market: government bond yields have fallen sharply in recent months to 1.35% from 4% at the start of this year, rivaling rates in fellow member states.

Riksbank’s Skingsley said today although Sweden’s economy is slowing, the economic picture shows signs of improvement since the October meeting. Skingsley signaled that the Riksbank sticks to its plan to move away from negative interest rates in December although upcoming data in the weeks ahead will be the deal maker. The Swedish krona extended its October rally amid prospects of stabilizing (regional) growth and US-China trade truce optimism.


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