- European equities opened mixed, but gradually ceded ground throughout the day, showing losses of around 0.5%. In the US, the S&P and the Dow opened little changed. The Nadasq outperforms (+ 0.45%), recouping part of yesterday's setback.
- Growth in Britain's dominant services sector slowed and inflation accelerated during November. The services PMI declined from 55.6 to 53.8 (vs 55.0 expected).
- The EMU services PMI was confirmed at a strong 56.2. The composite PMI printed at 57.5, indicating ongoing strong growth in the fourth quarter.
- The Republican-controlled US House of Representatives voted to go to conference on tax legislation with the Senate, moving Congress another step closer to a final bill.
- Poland's central bank kept interest rates at a record low 1.5% after its "wait-and-see" stance came under question when inflation unexpectedly hit its target last month for the first time since 2012.
- Growth in the US services industry cooled from a 12-year high. The headline non-manufacturing ISM index eased from 60.1 to 57.4, while only a decline to 59.00 was expected. Earlier this afternoon the US October trade deficit widened more than expected to $48.7bn (from $44.9bn) as exports stabilized while imports rose on a monthly basis.
- Canada's hard-hit export sector showed unexpected signs of strength in October, posting the first increase since May on higher shipments to the United States while imports continued to disappoint. Canada's trade deficit declined to a five-month low of C$1.47 billion from C$3.36 billion in September.
Core bonds settle in narrow sideways ranges
Global core bonds settled in the same narrow sideways ranges from yesterday. Second tier EMU eco data didn't influence trading. October retail sales disappointed while the November services PMI was confirmed at a strong 56.2. Details showed signs of wage pressures within Italian, French and German services sectors. European stock markets lost slightly ground while Brent crude hovered around $62.5/barrel. During US dealings, focus turned to politics but markets shrug off the uncertainty for now. House and Senate members hope to streamline their US tax reform proposals before the end of the year, special prosecutor Mueller's investigation into alleged Russian ties with Trump's presidential campaign widens and a new debt ceiling (Dec 08) comes closer.
At the time of writing, the German yield curve bull flattens marginally with yields 1.7 bps (2-yr) to 0.7 bps (30-yr) lower. US yields increase by 1.6 bps (2-yr) to 2 bps (5-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrow up to 2 bps with Greece outperforming (-56 bps). Today is the first trading day for five new bonds that were issued as part of €25.5 bn debt swap which occurred last week. The swap is a way to build a more normal yield curve and an entry point to market funding next year.
Dollar profits slightly from rising interest rate support
There were few data with market moving potential today. The EMU services PMI remained strong as expected, but didn't cause any sustained USD gains. US ST yields rose further later in the session, widening the interest rate differential in favour of the dollar. Of late, the dollar often ignored the guidance form interest markets, but this time it helped the US currency to some cautious gains. EUR/USD trades in the 1.1830/35 area. USD/JPY is changing hands near 112.70.
Asian equity indices show a mixed picture, but gradually lost further ground as the trading session developed. A new setback in US tech stocks also affected (parts of) the Asian markets. Still, the dollar 'bottomed' after yesterday's late session setback. USD/JPY traded in the 112.60 area. EUR/USD changed hands near 1.1870.
European equities initially remained quit resilient considering the price action in the US and in Asia this morning. The final EMU services PMI (56.2) and the composite PMI (57.5) printed as expected, confirming the strong momentum in the economy. There was little impact on the euro. Later during the European morning session, European equities gradually drifted south. Initially, this decline weighted slightly on the dollar. However, fortunes changed again in favour of the US currency as US traders joined the fray. Interest rate differentials between the US and Germany/EMU widened further, especially at the short end of the curve. Of late this widening was often of little help for the dollar, but this time the dollar captured a better momentum. The October US trade balance widened more than expected as exports stabilized while imports rose. However, the report had little negative impact on the dollar. USD/JPY trades currently in the 112.50/60 area. EUR/USD is changing hands in the 1.1835 area. The jury is still out, but there are tentative signs that the big (ST) interest rate differential is gradually giving the dollar some additional downside protection.
Fall-out from Brexit failure on sterling remains modest
Sterling remained under pressure this morning. Yesterday's last minute failure to strike a deal on the separation topics in the Brexit negotiations kept the UK currency in the defensive. Especially the issue of the Irish border looks a high, complex hurdle for the UK government. DUP party, which supports May's government, doesn't want a different status for Northern Ireland from the mainland UK. Regarding the data, the UK services PMI came out slightly softer than expected at 53.8 from 55.6 (55.00 was expected). At the same time, price indictors in the report rose quite sharply, indicating risks of higher inflation even as activity slows. Sterling traded already off the recent lows at the time of the release of the report. EUR/GBP initially hovered in the mid-0.88 area, but drifted back lower later in the session as the euro ceded ground across the board. Cable finally settled in the low 1.34 area. In a broader perspective, the sterling loss due to yesterday's failed separation agreement was not excessive. EUR/GBP still holds a sideways consolidation pattern between 0.8733 and 0.9033. There is probably already quite some bad news on Brexit discounted and markets still hope on a final breakthrough further down the road.