Markets
This morning’s (Asian) trading dynamics easily rolled over into European dealings. The US General Services Administration acknowledged Biden as the apparent winner of the presidential elections. By doing so, it formally kicks off the process of the power transfer. Incumbent president Trump suggested he and his team would co-operate with the shift. The move reduces the political uncertainty, supporting risky assets today. Markets also take comfort from former Fed chair and fiscal dove Yellen to be the next US Treasury Secretary. We must note however that nothing has been confirmed yet. Economic data was limited to the German Ifo indicator. The November reading retreated further from its recovery high to a more or less expected 90.7, mainly as sentiment in the services and trade sector worsened considerably. The expectations component was particularly hard hit by the re-imposed restrictions, falling from 94.7 to 91.5. A sub-index for hotels and hospitality tanked, according to the Ifo president. Just as was the case with Monday’s PMIs, markets were little impressed. European shares enjoy a 1.2%+ rally, led by cyclicals. US stocks open about 1% higher. Oil rallies another 1.4%, extending yesterday’s technical break higher. Gold tanks 1.75%, nearing $1800. Core bonds lose with USTs underperforming. The US yield curve bear steepens with yield changes varying from 0.5 bps (5-yr) over 1.4 bp (10-yr) to 2.7 bps (30-yr). German yields gapped higher but gains faded soon thereafter to trade virtually unchanged. Peripheral spreads to the German core tighten slightly, Italy outperforming (-3 bps).
On FX markets, the Aussie and kiwi dollar profited the most from today’s risk-on bias. The likes of the Norwegian krone are also well bid, banking on the recent strong rise in oil prices. The Turkish lira gets beaten once again. Turkey’s expected return to orthodox monetary policy didn’t support the currency for very long. EUR/TRY trades near 9.45 after finding support at 9 at the end of last week. Markets moves in Central-Europe are fairly muted. The Czech krona leads the pack with EUR/CZK near intermediate support around 26.25. A break lower paves the way towards the 26 post-pandemic low area. The dollar staged a similar trading pattern compared to yesterday. EUR/USD performed well during early European dealings, almost erasing Monday’s fierce intraday decline completely. The move ran into resistance close to 1.19 before fainting back to 1.184 opening levels. The currency pair changes hands around 1.185 currently. USD/JPY reversed a European decline completely to trade at 104.67 as did the trade-weighted DXY (92.49). Sterling fails to profit from an upbeat sentiment in technical trading after hitting important support near EUR/GBP 0.8865 yesterday. The duo tries to settle back above 0.89. Cable seeks to survive north of 1.33.
News Headlines
The governor of the Bank of Finland and former EC for economic affairs, Olli Rehn, argued that the ECB should be open not only to a genuinely symmetric price stability target, but also to considering make-up strategies as a way to strengthen the commitment to symmetry. He clearly refers to the new framework that the Fed adopted in Summer. He also opened up to aiming to achieve full employment, balanced growth and sustainable development, apart from solely targeting price stability.
The EU launched its third social bond to its SURE unemployment scheme. The 15-yr bond drew in excess of €90bn, allowing the EU to print €8.5bn. The large success of the EU bonds means that they already raised €39.5bn to date, exceeding the initial €30bn target and suggesting that today’s deal will be the final one of 2020.
