Markets
Asian market moves suggested yesterday’s minor risk-off setting would continue today. Equity markets started the day with a cautious bias but soon found a better bid. Investors find comfort in coronavirus curves showing first signs of topping out in countries including Germany, France, Spain and in Central-Europe which is of course the first prerequisite for any lockdown measures to be lifted. In the US, several states have only recently begun to impose restrictions. Looking ahead in time, the spring and summer 2021 still looks bright after Pfizer concluded its big vaccine trial with a stunning 95% efficacity. The company is planning to apply for the first US emergency authorization in coming days. Apart from mixed US housing data (housing starts beat consensus but building permits fell short), the eco calendar provided zero inspiration for trading. Stocks are up 0.5% in Europe and up to 0.4% in the US. Core bonds trade choppy but in any case erased almost all of the early Asian gains. Both US and German yield changes are negligible. Peripheral spreads are mostly unchanged. Greece (-3 bps) outperforms after the European Commission in its eighth report under the enhanced surveillance framework judged the country made enough post-GFC reform progress for it to receive further debt-relief measures.
Dollar moves once again made little sense today. The greenback traded on the back foot during the early morning risk-off but recovered as sentiment improved throughout the day. EUR/USD tested the high 1.188-resistance area before retreating back to the 1.186 zone currently. The trade-weighted DXY neared important support at 92.15 but avoids breaking below at the time of writing (92.4). USD/JPY is worth taking a closer look at. The pair extended its protracted decline to close just north of 104 yesterday. This important support zone is under heavy testing today (USD/JPY 103.90). A sustained break lower could have important ramifications for other dollar pairs. Sterling found itself well bid today even as a senior EU officials said November 23 would be the practical deadline for a Brexit deal but adding that a “happy ending in talks isn’t in sight” for the moment. Stronger-than-expected inflation triggered an early turnaround in EUR/GBP. Headline CPI increased from 0.5% y/y to 0.7% while markets anticipated a stabilization at last month’s level. Core CPI accelerated from 1.3% to 1.5% vs. 1.3% expected. The gradual improvement in risk sentiment did the rest for sterling. EUR/GBP advanced from 0.895 at opening to 0.893 currently. Cable nears the recent high at 1.33. A leap higher would bring 1.35 back on the radar.
News Headlines
National Bank of Poland board member Cezary Kochalski in an interview indicated that the space for another rate cut is very small. The policy rate of the National Bank of Poland is currently 0.1%. A further rate cut would raise the question whether a below-zero rate could bring positive effects. At least Kochalski doesn’t see those positive effects given the current state of the economy. Yesterday, MPC member Gatner also reiterated its objections against a too low interest rate. The zloty rebounded to EUR/PLN 4.47 today, after the currency yesterday ceded ground due to the country’s conflict with the EU on a rule of law clause for the country to obtain funds from the EU.
According to the Italian PM Conté, the aid measures that Italy has already taken to support areas of the economy that are hit by the corona virus are not enough and the government is working on further stimulus. According to sources, the cabinet will ask Parliament approval to raise this year’s budget deficit by an extra €20 bln on Thursday. The Parliament might vote on the request next week.
