Trading circumstances very much resembled the ones from yesterday: low volume, narrow-range action. Unlike yesterday, investors today did get some impetus to choose sides though. A first factor which FI and FX bluntly ignored was weakness on stock markets. European indices initially lost up to 1% before recovering somewhat during US hours. The stock market rally was prone for some correction given looming event risk (ECB/Fed, US retail sales, US impeachment process). The second interesting item was December German ZEW investor sentiment. The forward looking expectations gauge surged more than expected from -2.1 to 10.7, the highest level since early 2018. The ZEW suggests that stabilization in PMI’s & Ifo can be the start of bottoming out process. Third, but less important, was a bigger than expected rise in US NFIB small business optimism (104.7 from 102.4). Finally, Dow Jones reported that US and Chinese negotiators are planning to delay the tariff increases scheduled for December 15, another event risk. Despite these potential triggers, market reactions remained extremely muted. Changes on both the US and German curves are less than one bp. The US Treasury continues its mid-month refinancing operation tonight with $24bn 10-yr Note auction, which could still cause some underperformance of the US Note future in the run-up. EUR/USD holds steady around 1.1075. USD/JPY also didn’t go far. The pair spiked briefly higher upon that headlines that a tariff hike might be avoided. However, investors apparently consider the vague prospect of a delay insufficient to resume an outright risk-on trade. USD/JPY trades again near 108.60.

Sterling traded again according the established pre-election script. UK October monthly GDP and production/output data suggest that the economy reached a near standstill. However, this poor eco picture again had hardly any impact on sterling. On the contrary, political headlines still suggest the Conservative Party is holding a better momentum compared to Labour. A recording of a Labour official admitting an expected loss of his party didn’t help. EUR/GBP is again testing the 0.84 barrier.

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After a period relative calm, the Norwegian krone is facing new headwinds. November headline inflation eased from 1.8% to 1.6% (1.7% expected). Core inflation slowed to 2.0% in line with consensus. More worrisome news came from the Regional Network survey of the Norges Bank. Businesses indicated a material slowdown in output growth (to 2.1%% annualized) over the previous three months, with a weak performance of domestic oriented activity. Expectations for the next six month also suggest a further slowdown. EUR/NOK jumped from 1.1011 to 1.1019. The all-time low of the NOK against the euro (EUR/NOK 10.31) is again on the radar.

UK growth came to a standstill in the 3 months to October according to ONS as enterprises and consumers await the election outcome. During the period , economic activity was just 0.7% higher compared to the same period last year, the slowest in nearly seven years. UK Industrial/manufacturing production printed again in positive territory at 0.1.% M/M and 0.2% M/M respectively albeit after a contraction in September. Construction output (-2.3% M/M, -2.1% Y/Y) was substantially weaker than forecast. The trade deficit unexpectedly rose from £11.5 bn to 14.5bn.

Sentiment on US small businesses rose more than expected in November, from 102.4 to 104.7, according to the NFIB optimism index. The improvement in the sub-indicators of the survey was rather broad-based. SME’s improved assessment of subcategories ‘good time to expand’ and ‘positive earnings trends’ were supporting the improvement in the overall assessment. The report suggests that current US growth is still broadly supported.


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