Trading was numbed by some key events ahead. Investors took a guarded approach or remained side-lined. Core bonds trade with an upward bias, European stock markets balance between gains and losses and the dollar – losing its appeal as safe haven – fades against other majors. EUR/USD changes hands around 1.1075 compared to opening levels near 1.1050. USD/JPY grinds to the 108.50 area. Sterling initially profited from another election poll putting the Conservatives in a comfortable lead. EUR/GBP briefly traded below 0.84 for the first time since May 2017, but the move didn’t last. The US yield curve bull flattens with yields declining by 0.8 bps (2-yr) to 2.9 bps (30-yr). German yields drop by 1.1 bp (2-yr) to 2.9 bps (10-yr). 10-yr yield spread changes vs Germany are close to unchanged with Greece (-6 bps) and Italy (-4 bps) outperforming.
Event risk looms large this week. The Fed meets on Wednesday and is expected to stay put following three rate cuts earlier this year. The fresh dot plot probably indicates the central bank’s preference to stay on hold in the 2020 election year, awaiting more signs of the economy gathering fresh momentum. The ECB is up next on Thursday with President Lagarde’s inaugural meeting. The ECB will stay on hold as well, but we are eager to find out which accents Lagarde will stress. The UK general election, with PM Johnson’s Conservative party leading comfortably, also takes place on Thursday and could influence the Bund and US Note future through the UK Gilt Market. From a data point of view, we have US retail sales on Friday with consensus forecasting another decent figure (0.4% M/M). The icing on the cake is Sunday’s US-imposed deadline to add import tariffs on Chinese goods. US and Chinese negotiators seem to be in the final inning for a phase one trade deal. Will they be able to deliver this week and avoid additional charges? The possible start of House Impeachment votes serves as a wildcard.
Israel’s two biggest political parties agreed to hold new elections on March 2 next year if they do not hammer out a deal by Wednesday night in which power would alternate between the two. The idea came from parliament after both Netanyahu’s Likud party and the centrist Blue and White party led by Gantz failed to form a coalition following inconclusive elections in April and September.
A 28-day over-the-year-end term repo by the NY Fed was oversubscribed today. Market participants bid some $43 billion for the $25 billion the Fed had to offer, which was already higher than the initial $15 billion envisaged. Today’s term repo was the last of the three term operations currently planned. All of them were oversubscribed, indicating a hunger for short term funding into 2020.
Euro credit to non-bank borrowers from outside the euro area stood at € 3.38 trillion in the second quarter of this year, data from the BIS showed. That’s less than dollar credit to non-bank borrowers from outside the US ($ 11.93 trillion over the same period) but higher in relative terms (up 8.9% vs. 3.9%) in a sign that the low yielding European currency is gaining popularity.