Poor European November (services) PMIs due to containment measures were quickly judged irrelevant. They confirmed a double dip recession in the current quarter but market’s focus is on a rosier 2021. AstraZeneca added to those hopes by being next in line to have developed a well-working vaccine. EMU equities traded long in the green but fell prey to some minor profit-taking eventually. Wall Street rose more than 1% (DJI), profiting from US PMIs unexpectedly rising to multiyear highs. Reports suggesting President-elect Biden would pick former Fed chair Yellen as Treasury Secretary also lifted spirits. Investors assume Yellen to pursue job-enhancing fiscal stimulus (if she can get it passed a split Congress). Core bond yields rose amid a reflationary trade that also pushed oil and base metals higher. Gold slumped, falling below key technical support near $1850. USTS underperformed. The combined 2-yr and 5-yr bond sale due to Thanksgiving (Thursday) came in mixed-to-weak. The US yield curve bear steepened with the long end up 3 bps (10-yr) to 3.3 bps (30-yr). German yields ended off intraday highs to close near unchanged. The dollar traded heavy before spiking a full big figure from the EUR/USD 1.19 resistance area to 1.18 in the wake of the US PMIs before closing at 1.184. The sharp move coincided with USD/JPY surging back above 104 and DXY bouncing from key support near 92, suggesting technical elements were also at play. EUR/GBP touched the all-important support around 0.8866 (from 0.892) as risk-on and continued optimism on a Brexit deal keep sterling well bid.
Asian-Pacific equities trade mixed. Japan outperforms in a catch-up move. EMU and US futures are up after the US GSA kicked off the formal presidential power shift overnight (see below). The US dollar further retraces yesterday’s gain. EUR/USD trades near 1.1856; USD/JPY fills bids at 104.4. The kiwi dollar outperforms this morning (cfr infra). Core bonds pare some of the opening losses.
The eco calendar contains US Conference Board consumer confidence (November) and the German Ifo. The former could decline as a number of states started to introduce containment measures. That would follow an unexpected drop in the earlier U. of Michigan gauge. The November election results and a partisan sentiment divide will distort the reading though. The German Ifo will slip in November but the market impact after yesterday’s PMIs is poised to be minimal, even in case of a downward surprise. In current circumstances core bonds will remain under pressure (risky assets including equities and oil are up). USTs could underperform following reduced US political uncertainty and upcoming supply ($56bn 7-yr auction). The significant intraday dollar retracement from the sharp rise yesterday suggests that the greenback remains weak. In EUR/GBP we look out for sterling to top out after the recent strengthening as a Brexit deal is now by and large discounted.
New Zealand Finance Minister Robertson asked the central bank governor Orr to consider to include stability in house prices in the RBNZ’s monetary policy remit. The government is concerned with the rise in house prices and a risk of a housing bubble. Robertson asked the RBNZ to give his request the earliest possible consideration. In a reaction RBNZ governor Orr said that the central bank will review the request, but also said it is already considering the impact of monetary policy on housing prices. Still, markets reduced expectations for further RBNZ rate cuts. The kiwi dollar jumped to trade near NZD/USD 0.6970.
The US General Services Administration, the agency that signs off the presidential transition, formally allowed president-elect Biden to start the transition process. The clearance will give Biden access to White house briefings and funding. President Trump called GSA administrator Emily Murphy to do what is necessary, but he still will continue to contest the outcome of the election.