Risk sentiment turned a bit more cautious in Asia this morning. Yesterday evening, US president Trump signed a bill to support the protestors in Hong Kong. The approval was seen as potentially complicating the finalization of an ‘imminent’ phase one trade deal between the US and China. That said, the loss for most Asian equity indices was less than 0.5%. The approval of the bill probably was a good reason for some investors to take some chips off the table after the recent rally. In a broader perspective, the modest price reaction suggests that markets assume that the action of President Trump is mainly symbolic and that it won’t derail the trade talks in a profound way. Asian and European markets today had to find their own way. There was no guidance from the US as markets were closed for Thanksgiving. The profit-taking move on risk-assets also triggered a mild bid for the bund at the start of European dealings. However, the move had no strong legs and was gradually reversed later. EMU eco data were mixed. Economic confidence of the European commission improved more than expected from 100.8 to 101.3. At the same time regional German CPI data remained soft. Nationwide German harmonized CPI finally printed at -0.8% M/M and 1.2% Y/Y. Package holiday prices often ‘disturb’ the German inflation release. Energy also weighed on the overall price level. However, with no guidance from the US, moves in German Bunds remain small. Yields vary less than one bp across the curve with the 10-y marginally underperforming (+0.9bps). 10-y intra-EMU spreads versus Germany were mostly little changed. Italy underperformed (+3 bps).
On the currency market, EUR/USD yesterday came close to the 1.0989 correction low/neckline but a break didn’t occur. With US markets closed, trading was rather technical in nature today and the pair’s action radius was limited. Uncertainty on the impact of Trump signing the Hong Kong bill weighed temporarily on the dollar, but the decline soon stalled. EMU data were again not good enough to support further euro gains. EUR/USD is currently trading in the 1.1010 area. USD/JPY stabilizes in the mid 109 area.
Overnight sterling extended gains on a YouGov poll indicating that the Conservative party could gain a significant majority in the Lower House at the December 12 Parliamentary election. EUR/GBP dropped to the 0.85 area. However, the sterling couldn’t extend the gains during the day. EUR/GBP nearing an important support area at 0.8490/72 probably caused some caution among GBP-longs. EUR/GBP returned to the 0.8525 area.
The Polish supreme court sent a shiver through Polish markets. It allowed in a single case of a domestic loan that the amount in foreign currency might be converted back to zloty at the original exchange rate. The verdict casts a shadow over Poland’s banking sector as markets consider the ruling a potential precedent for the country’s pending $31 billion of foreign-currency mortgages. Zloty took a dive and plummeted to a 7-week low of EUR/PLN 4.325 after the verdict.
Euro zone economic confidence rebounded more than expected in November. The sentiment indicator came in at 101.3 from 100.8 in October, and above the 101 consensus. More optimism in the key services sector (4.9 vs. 3.7) alongside a better mood in industry (-9.4 vs. -9.7) and among consumers (-6.7 vs. -7.3) nudged overall sentiment higher. The higher than forecast outcome adds to recent flags that the euro zone economy might be bottoming and might be through the worst of the region’s recent slump.