Markets
The curtain falls on Donald Trump’s presidency. Democratic opponent Biden secured the Pennsylvania electoral votes on Saturday after carrying other swing states Wisconsin and Michigan earlier last week. AP also called Nevada in favour of the president-elect. With Georgia heading his way, Biden’s victory margin will be large enough to avoid (market) nervousness around recounts or other legal skirmish. US President Trump’s two-day radio silence and unwillingness to accept defeat suggests he’s still plotting something to tilt the balance in his favour. It will all be in vain though. Anyway, US Treasuries returned a part of the election night gains given clarity on the next US President. Better than expected US payrolls and anticipation on this week’s mid-month refinancing operation weighed as well. Four days straight of (record) 100k+ US COVID-infections furthermore suggests that fiscal support will be coming even if the US Congress remains split. Two Georgia run-offs (Jan 5) can at best tie the Senate election outcome. The US yield curve bear steepened with yields adding 0.8 bps (2-yr) to 7.7 bps (30-yr). The German yield curve moved in similar fashion, but absolute changes ranged between +0.8 bps (2-yr) and +2.6 bps (30-yr). US stock markets fluctuated near recent highs, but failed to take them out.
The dollar’s reaction function is quite remarkable these days. Whatever happens, the greenback takes the brunt. Friday’s rise in US yield mostly came on the back of higher real rates rather than inflation expectations, but that couldn’t stop the US currency from sliding. The worrying COVID-developments (catching up with Europe) could be at play. The trade weighted dollar descended towards the bottom of the 91.75-94.74 range. EUR/USD is trying to take out first resistance at 1.1881 which would pave the way to the YTD high at 1.2011. USD/JPY confirmed the break below the low 104-area.
Asian bourses gain up to 2% this morning with European futures pointing at a risk-on start of the trading day as well, but we remain cautious in embracing this sugar rally. Today’s eco calendar is thin apart from a 3-yr Note auction which could cause additional underperformance of US Treasuries vs German Bunds (10y and 30y sales still to come). Eco data remain scarce later this week, but the ECB’s annual forum (including Lagarde-Powell-Bailey), a G20 finance ministers/central bank meeting and the November 15-16 brexit deadline are events to follow up on. Sterling remains stuck in no one’s land just above EUR/GBP 0.90. We are still skeptical for additional sustained gains for the UK currency.
News Headlines
Turkish president Erdogan fired Turkish central bank governor Uysal over the weekend. A series of (stealth) interest rate increases failed to halt the slide in the lira. The move came after the Turkish lira set another record low to the euro and USD. Former Finance minister Agbal will replace Uysal. Also in the weekend, current Finance minister Albayrak unexpectedly stepped down because of health reasons. The lira strengthens this morning.
The Polish central bank kept rates unchanged at 0.10% last Friday and will continue its asset purchase programme as currently planned. It projects lower growth for 2021 due to the second coronawave and restrictive policies but sees inflation higher than earlier expected for this year (3.5% vs. 3.3% earlier) and the next (2.5% vs. 1.5%). EUR/PLN currently trades near 4.50, holding on to recent gains.
EU trade ministers will meet today to plan a “reboot” of the bloc’s trade relationship with a post-Trump US. The meeting comes shortly before the EU will slap retaliatory tariffs over a long-running Airbus/Boeing dispute. EU officials do not assume a return to the old normal but strongly hope that the US under Biden will treat the bloc as a partner rather than a threat.
