Markets
Global investors remained cautious to buy into risk assets as the coronavirus is still spreading inside and outside China and as the economic impact remains difficult to assess. The reopening of Chinese markets next week might cause some wild swings with potential negative spill-over effect on broader markets, supporting a risk-off positioning. In this context, eco data often only play a role if they confirm the established market trends. In this respect, EMU eco data were again unconvincing. EMU Q4 growth slowed to 0.1% Q/Q (0.2% expected) as Italy (-0.3% Q/Q) and France (-0.1% Q/Q) dropped into contraction territory. EMU inflation also failed to live up to market expectations (core easing to 1.1% Y/Y, headline 1.4% as expected). The data were no game-changer for intraday trading, but supported the bid for core bonds. US data were close to expectations and largely ignored. US yields decline between 3.25 bps and 4.0 bps, with the 5-10y sector outperforming. German yields decline between 0.5 bps and 2.0 bps, after opening (marginally) higher. 10-y EMU yields spreads versus Germany are little changed. So the poor eco performance of the likes of Italy currently hardly translates into a higher risk premium. FX trading this time didn’t fully follow the risk-off script. Smaller, illiquid currencies mostly fought an uphill battle. At the same time, yen gains were modest also against a soft dollar. USD/JPY is trading in the 108.90 area. EUR/USD even rebounded despite poor regional eco data. The decline in global core yields at this stage hurts the dollar (slightly) more than the euro. EUR/USD is trading in the 1.1050 area.
Sterling showed two faces at the last day of the UK membership of the EU. The UK currency this morning extended the rebound that followed after the Bank of England left is policy rate unchanged at 0.75%, leaving sterling with a significant interest rate advantage against the euro. The BOE ‘hopes’ that receding uncertainty on global trade, on Brexit and a fiscal injection of the UK government will result in an economic rebound at the start of 2020. The sterling rebound caused EUR/GBP to test the 2020 low in the 0.8390 area. UK monetary/lending data were reasonably OK. Data on consumer credit and mortgage lending at least supported the view that UK households found their composure after the December 12 election. Even so, the positive news this time wasn’t enough to push EUR/GBP beyond technical support. Sterling even fell prey to (end-of-month?) profit taking. Some headline risk regarding the upcoming EU-UK trade negotiations was maybe also in play (both parties are airing tactical starting positions). EUR/GBP is currently trading little changed in the 0.8415/20 area. Cable preserved more of its intraday gain as the dollar felt some headwinds overall.
News Headlines
The Democratic lead impeachment process against president Trump is drawing to an end. The US Senate will soon decide on – but likely reject – the hearing of additional witnesses. That is followed by a final vote on the two impeachment articles. The required two-third majority in the Republican-controlled Senate will probably not be met which would lead to the acquittal of Trump.
Leader of the SNP Nicola Sturgeon said she wouldn’t rule out bringing the legality of calling a referendum (on Scottish independence) to court if the UK government continues to oppose a new vote. Calls for a redo of the 2014 vote have been rising since the Brexit vote in 2016 after a majority of the Scottish wanted to remain in the EU (62% – 38%).
