A mild risk-off market climate is today’s best trading recap. European equity indices shed around 0.75%. Core bond yield curves bull flatten. US yields lose 0.3 bps (2-yr) to 1.1 bp (30-yr). Changes on the German curve vary between flat (2-yr) and -2.4 bps (30-yr). 10-yr yield spread changes vs Germany are broadly unchanged with Greece (+5 bps) underperforming. The greenback takes the upper hand on the FX market, even against the Japanese yen. USD/JPY rises to just above the 104 handle. The trade weighted US currency (DXY) bounces off 92.13 support after yesterday’s rejected test. EUR/USD takes a step back and currently changes hands around 1.1825. The pair twice failed to retake 1.19 this week. EUR/GBP rises to 0.8950 with the EU and UK still working on a trade deal. Less liquid smaller currencies underperform somewhat with PLN closing the ranks. Brent crude stands its ground north of $44/barrel.
Rising global Covid-tallies result in tougher restrictions now also outside of Europe. Reality is again catching up with the longed for rapid mass immunity following recent vaccine breakthroughs. The IMF stressed the grim picture: “While global economic activity has picked up since June, there are signs that the recovery may be losing momentum, and the crisis is likely to leave deep, unequal scars. Uncertainty and risks are exceptionally high”. The warning comes as G20-leaders prepare for a virtual summit this weekend, hosted by Saudi Arabia. IMF Georgieva added that it’s too soon to remove policy support (unemployment benefits etc.) while pointing out that some economies even have room for greater fiscal stimulus. As an example she referred to synchronized infrastructure investments. IMF research shows that individual countries need two-thirds more spending to achieve the same outcome in terms of economic gains compared to a coordinated response.
The US eco calendar contained weekly jobless claims and Philly Fed Business Outlook (November). Weekly claims unexpectedly rose from 711k to 742k, the first increase in five weeks. The number could be distorted by US Veterans’ Day, but sends a warning signal. Restaurants etc will be hit hard by new lockdown measures and could push a lot of US employees back to state support. Another worrying thing is the year-end expiration date of several programmes which shelter millions of US citizens. Restrictions and lack of fiscal support thus risk triggering new spikes in unemployment figures. The less-than-feared setback in the Philly Fed Business Outlook (26.3 from 32.3) hides steeper falls in new orders, shipments and forward looking expectations. We’ve seen similar details in Monday’s Empire Manufacturing Survey.
Contrary to last month, the Turkish central Bank (CBTR) today didn’t disappoint markets. The MPC led by the new governor Naci Agbal raised its policy rate (1 week repo rate) from 10.25% to 15.00%. The committee said it will “implement a transparent and strong monetary tightening in order to eliminate risks to the inflation outlook, contain inflation expectations and restore the disinflation process.” In order to be transparent, the CBTR will from now provide liquidity via this 1-week repo rate . The CBTR’s decision aims to support President Erdogan’s recent promise to move to a more orthodox policy. The Turkish lira already rebounded more than 10% from the historic low set early this month. Today the lira additionally gained about 2% against to euro (EUR/TRY 8.9625 area).
The Central Bank of South Africa left its policy rate unchanged at the historic low level of 3.5%. The unchanged decision was expected, but two members of the Board voted for a 25 bps rate cut. The central bank’s projection model doesn’t signal any further rate cuts anymore and suggests two 25 bps rate hikes in the second half of 2021. At 3%, South African inflation is at the bottom of the central bank’s target band. The rand is losing slightly ground today (EUR/ZAR 18.40 area), topping out after a strong run since early August.