German yields rose more than US ones earlier this week. Eco data were only of secondary importance. The EMU eco picture stays fragile, even as there are tentative signs of bottom. US data were a bit unconvincing with the US ISM’s printing weak to mixed. An important factor difference was the revival of the debate on potential fiscal stimulus in Germany as SPD voted for a new party leadership, aiming a less strict fiscal discipline. This debate initially supported German yields. Later the performance of US and German Bund developed again more synchronized. Core yield markets in Germany and the US took a more cautious approach today, awaiting more news on the US-China trade talks and even more, looking forward to the US payrolls. OPEC approving additional production cuts of 500 000 p/d didn’t have much impact on broader (interest rate) markets (Brent oil stable near $63 p/b).

The US payrolls were exceptionally strong with 266. 000 additional jobs and a 41 000 upward revision for the previous two months (180 000 was expected). The unemployment rate declined to 3.5%. Wages printing marginally higher at 3.1% Y/Y vs 3.0% expected. The report reinforced the case of the Fed moving to a wait-and-see approach after three pre-emptive rate cuts earlier this year. US yields jumped higher with the 5y hit the hardest (+5.6 bp). The 2-y rises 4.5 bp. The 30-y 3.5 bp. German yields also turned north but the rise was limited to 1.0 bp for longer maturities. The combination of solid eco data and a guarded rise in (core) yields, trigger a new up-leg on US and European equity markets. 10-y yield spread changes versus Germany mostly were little changed with Greece (-4 bp) and Italy (-3 bp) outperforming. European bond investors still should keep an eye at the SPD congress this weekend.

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Sentiment on the dollar turns more cautious this week. At the same time, the euro gained some traction. Some soft US data caused USD profit talking. Technical factors were also in play. EUR/USD failed to break the 1.0980/1.10 support. Return action brought the pair to the 1.11 resistance. It was up to the US payrolls to decide whether there was reason for a sustained further EUR/USD gains. The very strong payrolls evidently capped further EUR/USD gains beyond the 1.1116/1.11 area. That said, the decline of EUR/USD remains modest given the big payrolls surprise. EUR/USD currently still trades in the 1.1070 area. USD/JPY jumped from the 108.60 area and currently trades in the 108.90 area. However, the short-term top at 109.73 isn’t within reach yet.

Sterling succeded substantial further gains this week. There wasn’t that much concrete news in the form of new polls questioning the expected outcome of next week’s UK parliamentary election. Markets see a high probability of the conservative party reaching a comfortable majority in the Lower House and being able to finish at least a first part of the Brexit stalemate by getting the Brexit deal approved. This prospect of a ‘favourable’ outcome caused investors to use any (admittedly limited) sterling corrections/declines to further reduce sterling short hedges. This pattern simply continued today. EUR/GBP is again testing recent lows in the 0.8440 area.

News Headlines

Canadian payrolls hugely disappointed in November. Net change in employment declined by 71 200, while consensus expected an increase by 10 000. It’s the largest jobs loss since 2009. Both full time (-32 800) and part time (-38 400) jobs were shed and the decrease was broad-based among goods-producing and services sectors. The unemployment rate spiked from 5.5% to 5.9% even if the participation rate fell from 65.7% to 65.6%. The loonie was hit hard, given that weak Canadian payrolls were published together with a strong US labour market report. USD/CAD surged back above 1.3250.


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