Markets
Markets retraced somewhat on the sharp moves at the start of the week as Covid-19 reality catches up with global vaccination dreams. Especially US curves are spiraling out of control again with the city of Chicago for example issuing fresh stay-at-home orders. The power vacuum at the national top impedes with a strong response. US President Trump defies to admit defeat, leaving president-elect Biden without effective control. NBC News officially called Arizona in favour of Joe Biden yesterday, further cementing his lead and thwarting Trump’s hope to overturn an election which was “stolen from him”. US stock markets lost 0.5% to 1% with Europe ending up to 1.5% lower. Core bonds recovered somewhat from the past days’ beating. US Treasuries outperformed including a catch-up move after Wednesday’s Veterans Day. The US yield curve bull flattened with yields down 0.5 bps (2-yr) to 10.3 bps (30-yr). The US Treasury wrapped up this week’s issuance with a 30-yr bond sale. Bidding metrics were solid even as the auction tailed slightly. The bonds were awarded at 1.68%, the highest level since February. The German yield curve moved in similar fashion as the US one with yields shedding 0.7 bps (2-yr) to 3.9 bps (30-yr). 10-yr yield spreads vs Germany ended broadly unchanged with Italy outperforming (-3 bps). EUR/USD returned above 1.18 after a brief stay south of that big figure. The trade-weighted greenback stabilized around 93.
Most Asian stock markets trade with losses this morning, even as intraday dynamics shows an improvement of momentum towards the end of the trading session. European and US equity futures still point to a difficult start though. Today’s eco calendar doesn’t provide much inspiration with only the second reading of EMU Q3 GDP and November US Michigan consumer confidence up for release. It suggests that today’s trading session might follow yesterday’s playbook, with investors favouring safer assets ahead of the weekend with the dollar losing momentum.For UK investors its Groundhog Day as the umpteenth “final” brexit deadline arrives (November 15). This week’s radio silence suggests that intense discussions remain ongoing. UK PM Johnson plays with a weakened hand making his reaction function even harder to predict. We still assume that’s in his own best interest to avoid a no trade deal brexit. Sterling investors nevertheless chose for some safety, banking on the UK currency’s rally since mid-September and sending EUR/GBP back to the high 0.89-area after a failed test of EUR/GBP 0.8864.
News Headlines
The US administration on Thursday published an new executive order prohibiting American investments in Chinese firms that are owned or that US says to be controlled by the Chinese military. The measure aims to prevent US investment firms and pensions funds to invest in shares of 31 Chinese firms. According to the order, “China is increasingly exploiting United States capital to resource and to enable the development and modernization of its military, intelligence, and other security apparatuses.”
The EU commission confirmed that it has received a letter from the Polish Prime Minster Morawiecki who warnsthat the country might block the EU’s budget deal and the implementation of the recovery fund. In the letter, Poland disagrees on the mechanism that links the pay-out of funds to countries that adhere to democratic standards and to the rule of law. The EU requires unanimous approval of its member states to give the commission authority to borrow the money needed for the recovery package.
