• European equity markets started the week with small losses (-0.2%) in a low volume trading session. US stock markets opened with small gains.
  • UK Environment Secretary Gove and Foreign Secretary Johnson will demand that PM May presses for a hard Brexit when the UK starts trade negotiations with Brussels, as payback for their support for her deal last week, according to unidentified sources.
  • EUR/SEK rose above 10 after SEB’s Swedish housing-price indicator dropped to the weakest level in almost six years in December, with most respondents expecting price declines. EUR/NOK approached 9.9 after slightly disappointing November inflation data. Both headline (1.1% Y/Y) and core inflation (1% Y/Y) decelerated.
  • Turkey’s economy grew at a blistering 11.1% in the Q3 for its fastest expansion in six years, data showed, handily beating forecasts due to government incentives and the base effect after last year’s failed coup.
  • Merger activity in the euro zone bank sector is likely to accelerate given rapid economic growth and a reduction in soured debt, ECB supervisory chief Nouy told a Portuguese newspaper.


Low volume trading session ahead of key events

Global core bonds traded with a small upward bias but volumes are extremely low. We don’t draw conclusions from today’s action. An intraday peak was reached shortly after media started reporting on a NY explosion. Fragile risk sentiment on European stock markets and higher oil prices gave mixed impetus for other markets. The eco calendar was empty and most investors remain side-lined with this week’s back-loaded agenda. On Wednesday, the focus turns to the US with the key Fed meeting, CPI inflation and a rumored Trump speech providing final details of tax reforms. The ECB and BoE gather on Thursday with also the publication of EMU December PMI’s and US retail sales The start of the US supply operation (tonight) normally weighs somewhat on US Treasuries, but that’s not the case today. The Treasury holds a $24 bn 3-yr Note auction and a $20 bn 10-yr Note auction. The WI’s currently trade around 1.93% and 2.36% respectively.

At the time of writing, the US yield curve flattens slightly with yield changes ranging between +0.4 bps (2-yr) and -1.4 bps (30-yr). The German yield curve bull flattens with yields declining up to 1.8 bps . The German 10-yr yield tests 0.3% support for a fourth straight session. On intra-EMU bond markets, 10-yr yield spread changes versus Germany widen up to 2 bps with Portugal slightly outperforming (-1 bp).


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USD topside blocked for now

There was hardly any hard news to guide USD trading today. Investors turned again more cautious on the dollar after last Friday’s soft US wage data and this bias continued today. USD/JPY trades in the 113.40 area. EUR/USD is returning to the 1.18 area. The topside in the dollar is blocked for now.

Overnight, Asian equities mostly traded with gains of 0.5% to 1.0%+, extending last week’s rebound. The (trade-weighted) dollar drifted gradually further south as risk sentiment turned a bit more cautious ahead of Wednesday’s Fed policy announcement. USD/JPY held up fairly well and even set a minor ST top this morning before returning to the mid 113 area later. EUR/USD extends its post-payrolls rebound and traded in the 1.1780 area at the European opening.

There were no important eco data in Europe or in the US to guide USD trading. The dollar continued to trade with a slightly negative bias throughout most of the day. Friday’s soft US wage data clearly prevented investors to add USD long positions going into Wednesday’s Fed policy announcement. Interest rates/interest rate differentials were no guide for USD trading today.

Early in US dealings, headlines on an explosion in New York sent some shivers across markets, but in the end it had little directional impact on global markets. USD/JPY trades in the 113.40 area. EUR/USD remains well bid. The pair holds close to, mostly slightly below the 1.18 big figure. Dollar caution prevails after last Friday’s US payrolls report.

Brexit-optimism erodes, weighing on sterling

Sterling continued trading with a negative bias today, prolonging the slide that started on Friday after the press conference of EU commission president Juncker and UK PM May. The interpretation/nuances from different players involved in the process are different. However, Friday’s agreement clearly was far away from a detailed, legally binding text. A commission spokesman called it a gentlemen’s agreement. The hot topics that where avoided last week in order to be able to move to the next stage of the negotiations will return in the second phase. It also remains unclear how much backing UK PM May has in her own government. The feeling that little progress has been made erased last week’s tentative sterling optimism. EUR/GBP returned north of 0.88. Cable settled in the high 1.33 area.


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