Markets:
Global core bonds traded in narrow ranges today until the start of US dealings. Attracted by the very near contract low, US Treasuries faced selling pressure. The US 10-yr yield attacked 2.5% resistance and rose to the highest level since March 2017. The US yield curve bear steepens with yields up to 4.4 bps (30-yr) higher. The German yield curve shifts in similar fashion, but yield changes are more modest (+1.2 bps for 30-yr).
The yen rose against most other majors this morning as the BOJ bought fewer government with long maturities. Markets pondered whether this was a first minor step towards a less easy monetary policy further down the road. USD/JPY tried to return to the 113 mark early in European dealings, but the attempt failed. Yen strength prevailed throughout the session. That said, the dollar was a good second best. The trade-weighted dollar (DXY, currently 92.50) extended yesterday’s rebound. The move was mostly technical in nature. EMU eco data (German production & exports, EMU unemployment) were again strong, but didn’t help the euro. LT interest rate differentials widened in favour of the dollar, but we doubt this was an important driver for price action on the FX market. The correction/profit taking on EUR/USD and EUR/JPY longs that started after Friday’s US payrolls simply continued. EUR/USD trades currently in the 1.1930 area. EUR/JPY dropped to the 134.25 area.
Sterling followed the global market trends today as there was little UK specific news to guide trading. EUR/GBP hovered in a tight sideways range in the lower half of the 0.88 big figure. The reshuffle of the UK government made little impression on markets and caused no further sterling gains. Cable declined to the low 1.35 area, mostly mirroring the over better performance of the dollar (currently 1.3520 area).
Equities maintain the positive momentum that dominated trading since the start of the new year. European equity indices show gains of about 0.5% +. The correction of the euro/rise of the dollar probably explains a slight outperformance of Europe over the US. US equities opened with modest gains of about 0.1%/0.25%. The Dow, the S&P and the Nasdaq are setting new records.
News Headlines:
German Industrial production rose a very strong 3.4% M/M and 5.6% Y/Y in November, confirming the strong momentum in Europe’s biggest economy. The consensus only expected a 1.8% monthly gain. A similar picture appeared from the November foreign trade data. Exports rose 4.1% M/M (1.2% was expected). Imports rose 2.3% (0.4% expected) on strong domestic demand. The German trade surplus widened to 23.7 bn from 18.9 bn in October. The German government raised its forecast from 2017 after the publication of the data from 2.0% to 2.2%.
Euro zone unemployment declined to 8.7% in November, from 8.8% in October. It was the lowest level since January 2009. The number of unemployed in EMU fell by around 107 000 to 14.263 million, Eurostat said.
The US NFIB small business confidence declined sharply in December despite the approval of the tax reform. The headline index fell from 107.5 to 104.9, the first decline since September of last year. Series on the labour market and on compensation held up rather well. Subseries on (expected) activity eased.
The Chinese central bank took a step to loosen control over the yuan exchange rate reflecting confidence that depreciation pressures on the currency have eased. The PBOC reduced the impact of the "counter-cyclical factor" in the formula it uses to determine the mid-point reference rate for the yuan against the US dollar. That factor was designed to lessen the impact of market forces on the yuan’s reference point.
