A 5 session straight rise of long term US yields ends today. The US 10-yr yield lost slightly overnight before flatlining. The overnight move was related to a report on Russian and Iranian US election meddling and caused some risk aversion in Asian dealings. For the time being, it doesn’t hijack headlines or trading as key theme. After the Asian move, the US 10-yr yield broadly stabilized just above key resistance broken earlier this week at 0.80%. A larger than expected fall in US weekly jobless claims couldn’t deliver fresh momentum higher. Claims only for the second time since the start of the COVID-crises dipped below 800k (787k). Because of the overnight move, the daily score card so far shows a bull flattening of the US yield curve with yields declining by 0.3 bps (2-yr) to 2.4 bps. Changes on the German yield curve are too small to mention today. 10-yr yield spread changes vs Germany barely budge. The Italian debt agency raised €8bn via a new 30-yr syndicated deal which thanks to huge demand (>€90bn) was priced 3 bps tighter than initial guidance. The record demand for 30-yr Italian debt shows massive confidence investors – searching for yield – have in the ECB’s monetary policy.
European stock markets partly recovered from a difficult start. They currently lose up to 0.5%. Technical pictures become heavier and heavier as lockdown measures turn more stringent across Europe. Several institutions warn for high solvency issues especially at SME’s in the next 12 months. The EuroStoxx 50 is busy creating a pattern of consecutive lower tops (3) and lower bottoms (2 so far) since the July recovery high. A break below 3098 would confirm this sell-on-uptickspattern. A move above the October high 3305 would make the technical picture more neutral.
The US dollar got some reprieve after a 4-session beating. The trade-weighted greenback returns to the high 92-area, but remains below the technical 93 barrier. EUR/USD is currently retesting the 1.1831 mark. There are no strong drivers behind today’s action on the FX market. Sterling manages to cling to yesterday’s impressive gains as brexit trade talks restart. However, first support at EUR/GBP 0.9007 is a bridge too far for now. Bank of England Haldane keeps the negative policy rate debate alive by stressing that studying the option doesn’t mean it will eventually be used. We side with the part of the market that the BoE won’t pull the trigger on negative rates and the magic of using it as a carrot for markets is gradually worked out.
The central bank of Turkey today unexpectedly left is police rate (weekly repo rate) unchanged at 10.25%. Markets expected a follow-up interest rate hike towards the 12% area, after the CBRT already raised its policy rate by 200 bps in September. That September rate hike aimed to reduce pressure on the lira and address ongoing high inflation (11.75% in September). The CBRT raised its upper interest rate corridor (LLW, late liquidity window) to 14.75% from 13.25%. The Bank indicated that it will continue to take liquidity measures until the inflation outlook improves significantly. However, today’s step clearly doesn’t convince markets on the CBRT inflation commitment. The lira is setting record low levels against the dollar and the euro (currently EUR/TRY 9.42).
According to a report published by the IMF today, sub-Saharan Africa’s economies will not return to pre-pandemic growth levels until 2022. For some major economies this process will take even longer. The economies of major countries in the region like South Africa, Nigeria and Angola are expected to contract by 8%, 4.3% and 4% respectively. The IMF doesn’t expect growth to return to 2019 levels until at least 2023 or 2024.