- European equities had a constructive session today, but still stick to a narrow sideways range following a substantial sell-off in the first half of November. US equities open with small gains.
- Loans to businesses across the eurozone increased at their fastest rate since the financial crisis in October, underscoring the recovery in demand across the bloc as the ECB prepares to scale back its stimulus programme. French consumers brightened their outlook in November after four months of declining confidence.
- Raising interest rates before the end of the decade could threaten the long-sought after economic recovery in the eurozone, the OECD has warned. It does not expect the European Central Bank to begin raising rates until 2020 given below-target inflation and continuing slack in local labour markets.
- Ireland averted an election that could have derailed crucial Brexit talks with the U.K., as Deputy Prime Minister Fitzgerald agreed to resign and end a five-day political stand-off
- All OPEC members support extending their oil production cuts until the end of 2018, although Russia hasn’t yet committed to the proposal before Thursday’s meeting in Vienna, said people familiar with the matter. Brent oil trades at $63.45/barrel, a daily loss of 40 cents.
- The prospect of Brexit will continue to weigh on Britain’s economic performance over the next two years, while creating risks and opportunities for other European countries, the OECD said on Tuesday.
Rates
Another sideways trading session
The Bund traded in a tight 20 ticks range between 163.10 and 163.30, now quoted in the middle of that range. The short end slightly underperformed, but the differences are marginal. US Treasuries traded virtual unchanged until a small move higher after a much higher than expected trade deficit was reported. It may weigh somewhat on Q4 GDP growth. However, even this move was negligible even in an intra-day perspective. Other markets gave little impetus. The dollar was fractionally higher, oil lower and European equities moderately higher. None had noticeable impact on core bonds. European data remained encouraging, but were also unable to affect trading. At the time of closing our report, Fed chairman nominee Powell will appear for a hearing before the Senate banking Committee and the consumer confidence (Conference board) will be released. A 7-yr T-Note auction takes place later this evening. Surprises are possible but unlikely.
At the time of writing, the German yield curve shows little moves with yield changes ranging between +0.5 bp (2-yr) and -0.2 bp (10-yr). The US yield curve trades within 1 bp lower across the curve. On intra-EMU bond markets, yield spreads are again virtually unchanged. Irish bonds didn’t react to the resolution of the political crisis (which didn’t weigh on Irish bonds in the first place).
Currencies
USD decline halts, for now.
EUR/USD and USD/JPY trading was confined to very tight ranges today. Eco data were few and unable to give trading firm direction. The dollar stayed away from yesterday’s ST correction low against the euro and the yen, but it’s too early to assume that a bottoming out process is in place.
Overnight, the correction on Asian equity markets that started last week slowed. Chinese equities even succeeded a late session rebound and finished the session in positive territory. USD/JPY traded stable in the low 111 area. EUR/USD hovered in the 1.19 area.
European equities initially didn’t know which way to go, but finally joined the positive trend from China. However, the developments on the equity markets again failed to give any clear guidance for trading in bonds and FX markets. EMU money supply and lending data were constructive, but broadly as expected. USD/JPY and EUR/USD held extremely tight ranges close to the starting levels in Europe.
The US trade deficit was substantially bigger than expected ($ 68.3 b vs $64.9 b expected) both due to lower exports and higher imports. The higher trade deficit might reduce the Q4 US growth. Evens so, the report had no noticeable impact on the dollar. FX traders are apparently mainly focused on the US tax debate and on more important figures scheduled for release later this week. After the closure of our report, nominee Fed chair Powell will be questioned before the US Senate. US consumer confidence might also still affect the dollar. EUR/USD trades currently in the 1.1890 area. USD/JPY trades near 111.25.
Sterling losing ground in technical trade
There was again no dominant story to guide sterling trading today. The BoE in its financial stability review indicated that UK banks will be able to cope with the consequences of a disorderly Brexit. Still banks and the UK economy could suffer substantial costs in such a scenario. We didn’t seen any high profile new insights in today’s BoE assessment. In Ireland, the deputy Prime minister resigned, reducing chances for snap elections. This should also avoid additional problems as the EU and the UK seek for a solution for the UK/Irish boarder. However, it didn’t help sterling. The UK currency traded with a negative intraday bias. Technical considerations might have been in play. Cable yesterday tested the top of a MT consolidation pattern. This test was rejected. Maybe this caused some profit taking on ST sterling longs. EUR/GBP gradually extended its rebound north of 0.89. The pair trades again in the mid 0.89 area.
