Markets
Market euphoria after the promising Pfizer results earlier this week faded. Investors concluded that quite some good news might be discounted. Just call it a logical, technical correction. A workable vaccine will be a gamechanger for the economy, for fiscal and monetary policy and thus for markets. However, there are still several ‘unknowns’ including the time-path of the roll-out. Before this new phase with a vaccine, investors also still have to cope with the implications of current wave of the virus. The policy response both of fiscal and monetary authorities, remains a factor of uncertainty, too. These unknowns again got some more weight in markets’ assessment today. European equities tried to reverse modest opening losses, but the momentum dwindled further going into the US open. European equites are losing 1-1.5%. The Dow opened 0.65% lower, with the Nasdaq outperforming (currently +0.25%). Core yield curves bull flatten. US yields are declining between 0.8bps (2-y) and 5,75 bps (10-y). US initial jobless claims declined a bit faster than expected (709k from 757k), but HICP inflation (1.2% Y/Y) remains well below the symmetrical 2.0% target. German yields move from unchanged (2-y) to 2.5 bps lower. The scenario of the ECB focusing on asset purchases and its TLTRO lending program – as ECB’s Lagarde indicated yesterday – after all might give some support to EMU bond markets, too. Peripheral EMU bonds remain well bid with the 10-y yield spread of Italy still narrowing another 3 bps In a series of smaller bond auctions (total 6bln), Italy attracted money at record low funding levels at maturities of 3-y and 15-y. 7-y was close to such an all-time low. Later today, interest rate markets will keep a close eye at the appearances of ECB’s Lagarde, BOE’s Bailey and Fed’s Powell at an ECB forum.
The dollar shows no clear/consistent trading pattern. Earlier this week, the USD remained well bid despite the broad risk rally. Was the rise in US (real) interest rates/interest rate differentials finally gaining some importance as a driver for the US currency? Whatever the explanation, the dollar tends to lose a few ticks today but remains within the established short-term ranges. The trade-weighted dollar (DXY) is holding below the 0.93 pivot. EUR/USD tries to regain the 1.18 level but the jury is still out whether this will succeed. Any technically relevant levels are still out of reach. USD/JPY (105.20) has left the recent correction top but is holding north of 105. Both technicals and fundamentals triggered a change to this week’s sterling rebound. The EUR/GBP 0.8865 area perfectly did its job as key support level. The UK Q3 growth report (+15.3% Q/Q, but still -9.6% Y/Y) and in particular disappointing September output data, indicated that the UK economy is still fighting an uphill battle. EUR/GBP is changing hands in the 0.8960 area. BoE’s Bailey indicated that the BoE also assessed the merits of Yield Curve control. However, given current yields levels, there is little need to actively consider this option now.
News Headlines
The International Energy Agency lowered oil-demand forecasts for Q4 by 1.2 million barrels per day. The sharp reduction was initiated by a weaker consumption outlook and rising supply (eg Libya & US after hurricane disruptions). The IEA argues that a global Covid-19 vaccine is unlikely to ride to the rescue soon. The IEA’s outlook adds pressure on OPEC+ to delay its planned production cut tapering beyond the scheduled start of 2021. OPEC+ meets November 30-December 1st. Brent crude maintains this week’s earlier gains, trading around $44/barrel..
The Swedish Riksbank, Norges Bank and Danmarks Nationalbank agreed principles for central bank currency swap facilities to strengthen contingency for crisis situations and promote financial stability in the region. The agreement establishes the principles for cooperation by the Scandinavian central banks to swap their own currencies with one another, for example if one or more banks, in an extraordinary situation, were to need liquidity in another Scandinavian currency than their home currency.
