Global (equity) markets already reached a tipping point earlier this week. The theme of more US fiscal stimulus was exhausted and no longer able to support a continuation of the risk rally. Most likely, there won’t be concrete news on the degree of additional stimulus before the US election outcome. Profit taking on equity markets started moderately on Tuesday, but markets are growing ever more worried on the impact of a further sharp rise in corona infections, especially in Europa. Additional economic damage is almost impossible to measure. It is also very difficult to assess new (fiscal and monetary) policy steps and to what extent they might still be able to soften the fall-out of new social distancing measures on the economy. This mix of multiple unknows today resulted in an outright risk-off repositioning on almost all markets. Data are not that relevant in such a context, but an unexpected rise in US jobless claims (898 k from 845 k versus 825 k expected) didn’t help to calm nerves. European equites are losing up to 3.0%. Admittedly, the sell-off slowed around noon. US indices opened with losses of about 1%. Core yield curves show a further bull flattening, with long bonds attracting safe have flows. US yields decline between 0.5 bps (2-y) and 3 bps (30-y). Bunds again strongly outperform, losing 2.5 bps (2-y) to 6 bps (30-y). The German 10-y yield broke through the -0.58%/-0.61 support area. If confirmed, this break would be highly significant from a technical point of view, with the -0.70% area the next high profile reference on the charts. Of late, intra-EMU government bond spreads mostly traded very resilient to (admittedly mild) risk-off corrections. However, this time peripheral bonds also didn’t escape with spreads widening up to 9 bps (Greece) and even 11 bps for Italy!
The dollar played its role as last resort in turbulent times. Gains are substantial but not exceptional. Most major USD cross rates also didn’t break any important technical levels yet. The TW dollar (DXY) rose from 93.40 to currently trade in the 93.80 area. Moves in USD/JPY remain remarkably small (USD/JPY 105.20 area). EUR/USD is testing the 1.17 big figure (from 1.1750 early this morning). First important support is coming in at 1.1612. Moves in EUR/GBP also remained modest. EUR/GBP returned to the mid 0.90 area (from 0.9020 this morning). Headlines from the EU summit indicate that Brexit negotiations can continue for the next 2/3 weeks. However, there are few signs of real progress. The global risk-off and rising infections in the region also triggered aggressive selling in CE currencies, in particular for the forint and the zloty. EUR/HUF (365 area) is again nearing the 366/369 previous peak levels. The MNB left its one week repo rate unchanged at 0.75%. EUR/PLN jumped from the 4.52 area to the 4.56 area. The 2020 top just below 4.60 is gain on the radar. The Czech korona today outperformed the region (EURCZK 27.38 area).
The ADP research institute says that the Canadian economy shed 241k jobs from August to September. Trade, transportation and utilities were responsible for the lion share of the amount. Last month’s data faced a significant downward revision from -205k to -771k. It’s the seventh month running that ADP reports Canadian job declines. The Canadian dollar was hit by a triple whammy today, with global risk aversion and falling oil prices (Brent crude down from $43.4/b to $41.8/b) adding to the weak labour market data. USD/CAD surges from 1.3140 to 1.3240.
The Empire Manufacturing Survey (NY) and Philly Fed Business Outlook parted ways in October. The former unexpectedly declined from 17 to 10.5 while the latter surged from 15 to 32.3. However, details showed manufacturing strength in NY as well. The headline drop came from the fastest contraction of inventories since November 2016. New orders and shipments, as in Philadelphia, surged.