Markets
Trading on global (equity) markets yesterday was a mixed picture. European equities overcame weakness in Asia and closed with gains of about 0.5%. European investors maybe took comfort for gradually declining infection curves in at least part of Europe. US equities couldn’t hold on the positive momentum and selling accelerated going into the close with indices declining between 1.16% (Dow, S&P) and 0.81% for the Nasdaq. Technical factors were probably also in play as the Dow and the S&P failed to clear record levels earlier this week. The pause in the reflation trade was also visible as the rise in the likes of oil and copper petered out. Bond and FX markets showed no clear story. Despite the risk-off, US yields still gained up to 1.6 bp (5-y). Price moves at the long end of curve were a bit confusing. A $27 bln US 20-y bond auction tailed about 1 bp and weighed on the bond performance, but the move reversed toward the end of the session as risk-off intensified. German yields changed less than one bp across the curve. The TW dollar moved up and down in the lower part of the 92 big figure (close 92.40). USD/JPY extended the decline after the ‘vaccine-spike’ and closed below 104 (103.82). The picture of EUR/USD is a bit different. The pair on Tuesday and on Wednesday failed to clear the 1.19 resistance and closed at 1.1854. Sterling temporarily caught a better bid after higher than expected CPI data before returning some gains later (EUR/GBP closed at 0.8931).
Asian equity markets show a mixed picture this morning, which isn’t that bad give a difficult close on WS. The recent protracted rally of the yuan is taking a breather this morning (USD/CNY 6.5750). The yen rebound also takes a pause (USD/JPY 103.85). The dollar shows no clear trend (DXY 92.48). US Treasuries are gaining marginal ground. The Aussie dollar doesn’t profit from a strong Australian labour market report (AUD/USD holding near 0.73).
EMU data are second tier today. In the US, weekly jobless claims are expected to decline further to 700k. The Philly Fed business outlook might ease too. Negative surprises (especially in jobs data) might turn the market focus a bit more to ST negatives from the rise (US) infections. Also keep an eye at the headlines form the video conference of EU leaders (hints on progress with respect to Brexit). ECB’s Lagarde will testify before the EU Parliament. The topside in core yields now clearly looks capped after last week’s vaccine-related spike. The dollar still looks fragile (especially USD/JPY). At the same time, EUR/USD also shows no strong enough momentum to break through the key 1.1881/1.1920 area without a clear trigger. It will also be an important day for the Turkish Lira. The CBTR is expected to change course and raise the policy rate. The market expects a fundamental shift with a rise from 10.25% to 15%. Today’s action will be key in restoring market confidence on a more orthodox policy.
News Headlines
South-Korean Finance Minister Hong Nam-ki warned that one-sided moves in the Korean won aren’t desirable. KRW rose by 6% over the past month, beating all other major FX currencies. He added that the government closely monitors the situation and will take active measures at any time to stabilize it. USD/KRW bounces away from a 2-yr low to USD/KRW 1115.
German Bundesbank Weidmann argues in an FT opinion that central banks aren’t the first line of defense when it comes to addressing climate change. In a supervisory role, they can ask banks to take better into account climate-related financial risks. They can also consider only purchasing securities or accepting them as collateral for monetary policy purposes if their issuers meet certain climate-related reporting obligations. However, it is up to governments to tackle critical components in the climate battle like raising the market price of carbon or agreeing to a concrete path to reach the goals set out in the Paris agreement
Data from cross-border payment system SWIFT show that the euro ranked top as most used currency for the month October. The single currency outpaced the dollar for the first time since February 2013. The Japanese yen, pound sterling and the Canadian dollar complete last month’s top 5.
