At the start of the new week, global trading showed no clear, unequivocal trend across markets. Asian equities finished the month with modest losses despite the a solid China PMI confidence, both for the manufacturing and the services sector. This investor caution also spilled over into European trading. At the last day of a month with quite impressive equity gains, European indices mostly are switching between gains and losses. US indices are showing a similar picture. At the start of European dealings, it looked that the overall pause in the risk rally also would put some (albeit) modest downward pressure on core yields, but the move had no strong legs. ECB’s Lagarde repeated that the interest rates are to stay low for some time, but again also stressed the importance of fiscal policy at current juncture in the economic cycle. German HICP inflation unexpectedly declined further to -0.7% Y/Y (from -0.5% Y/Y). Inflation in Spain (-0.9% Y/Y) and Italy (0%) showed a similar subdued picture. The data reinforce the case for the ECB to recalibrate policy at the December 10 meeting, as it ‘pre-announced’ at the October meeting. However the direct impact on core bond trading was limited. Yields even reversed the tentative downward momentum. US yields are little changed at the short end of the curve but rebound up to 1.2 bp for longer tenors (10/30-y). German yields are rising 0.5/1.5 bp. Industrial commodities like copper holding strong, maybe to some extent counterbalanced the deflationary narrative. Headlines on Moderna submitting its vaccine for approval in the US and Europe also reminded investors to new era the corona pandemic has probably entered. 10-y intra-EMU spreads versus Germany are little changed to marginally tighter (-2 bp Greece).
Some calming down in this month’s risk rally of late still didn’t change fortunes for the dollar. The trade-weighted index DXY is extending its journey below previous 2020 low set on September 1 (91.75). EUR/USD (1.1990) is closing in on the 1.20/1.2011 resistance area. At least for now, the low EMU inflation data and possible ECB reaction didn’t help to arrest the EUR/USD uptrend. Markets probably (correctly) consider this move in the first place as USD weakness rather than euro strength. If so, the ECB maybe should feel less pressured to focus on the value of its currency when setting policy. Sterling showed a mixed picture too. EUR/GBP hovered directionless in the upper half of the 0.89 big figure as investors look out whether the EU and the UK can overcome their final differences on the way to a brexit deal. Cable is again nearing the 1.34 resistance are, but that is mainly a story of dollar weakness. On CE markets, the forint (EUR/HUF 359,25) and, to a lesser extent, the zloty (EUR/PLN 4.4750) rebounded despite the risk-off and as the rift with the EU on their veto toward the EU budget hasn’t been solved yet. The Czech krona slightly underperforms in a daily perspective, but had a very strong run earlier this month (EUR/CZK 26.22).
The administrator of US dollar libor rates announced that it might extend the publication of certain tenors (3m, 6m, 12m) until June 2023. Previously they agreed only to do so until the end of 2021. Doing so would allow most legacy USD LIBOR contracts to mature before LIBOR experiences disruptions. The administrator nevertheless calls for banks to stop writing new LIBOR contracts by the end of 2021.
Turkish Q3 GDP data beat forecasts, coming in at 15.6% Q/Q and 6.7% Y/Y. The State Staticstics Institute pointed to positive contribution from consumption and investments, but a drag from net-exports. Very easy monetary and fiscal policies and less strict lockdown measures supported the Q3 bounce. All of these factors tend to be less favourable in the final quarter of the year. The Turkish lire didn’t really react on the release, changing hands around 9.35.