Markets
(Equity) markets gradually entered calmer waters after a flaring up of uncertainty and volatility earlier this week. European equity markets recouped part of a weak start. US equities staged a modest comeback closing with gains of less than 0.5%. Eco data were plenty (Ifo, jobless claims) but were not able to remove the uncertainty on potential additional economic fall-out of the rise in infections. Especially prospects for the labour market continue to look challenging. Moves in core bond markets were confined to tight ranges. US yields changed less than +/- 1 bp. German yields also showed negligible gains of < 1bp. The dollar initially gained further after recent break of important technical levels, but the move lost momentum as global sentiment improved slightly during US trading hours. EUR/USD even closed the day marginally higher at 1.1672.(from 1.1660). The trade-weighed dollar also closed the day little changed in 94.30 area. Sterling (EUR/GBP) experienced a volatile trading session. The (prospect of) renewed fiscal support for the UK economy probably was sterling supportive. UK CBI retail data were also better than expected. Maybe investors also reduced some sterling shorts after more balanced comments on negative interest rates from BoE’s Bailey of late. At the same time, the new UK stimulus measures won’t prevent a sharp rise in unemployment going forward. EUR/GBP closed the day only slightly lower at 0.9156 (from 0.9164).
Asian equity markets are joining the ‘guarded optimism’ from WS yesterday evening. Markets ponder the chances of a new US stimulus plan as the Democratic party proposed a new $2.4 trillion relief package. Most indices show modest gains, with China slightly underperforming. Still the yuan holds strong after correcting lower recently (USD/CNY 6.8175). Chinese bonds being incorporated in an important bond market index might support the bid for Chinese assets and the yuan. The trade-weighted dollar is little changed (94.30 area). EUR/USD (1.16710) is still changing hands below the previous range bottom (1.1696).
The eco calendar is thin. EMU M3 money supply data are no market mover. The rise in US durable goods orders is expected to slow (1.4%) are after a sharp rise in the previous three months. The series is notoriously volatile. Global markets trading probably will be mainly driven by global risk sentiment. Core bond yields are confined to tight ranges and we don’t see a trigger to unlock this stalemate right now. We keep a close eye on the technical picture of the dollar. The US currency regained some important technical levels (DXY), including against the euro. However, subsequent follow-through gains were modest. Is the recent USD comeback already showing signs of topping out/slowing down? The jury is still out, but EUR/USD closing back above the 1.17 barrier would only reinforce the feeling that recent USD gains where a technical rebound and not the start of a protracted comeback. A better eco sentiment also could create a calmer context for sterling. Even so, we don’t see a trigger for a sustained sterling comeback. EUR/USD 0.9100/ 0.9083 looks like a solid support.
News Headlines
US junk bonds suffered its biggest weekly outflow since the peak of the pandemic in March. Capital leaving the asset class amounted to $4.86bn in the week ending September 23, EPFR Global data showed. Fears about the coronavirus and the impasse over fiscal aid as well as the looming US elections caused investors to limit their exposure to the more riskier market segments.
US special servicers are ramping up hiring as they prepare for a wave of defaults in the commercial mortgage-backed securities market. Special servicers work out solutions with borrowers struggling to pay their mortgage or eventually foreclose property and recuperate cash for bondholders. The rise in unpaid mortgages already led to a transfer of $54bn of loans in control to special servicers in recent months, more than 10% of the CMBS market.
