Markets:
US markets are closed today for Martin Luther King Day. Changes on the German yield curve ranged between -0.7 bps (2-yr) and +0.5 bps (30-yr) amid an empty eco calendar. The Bund hovered sideways near opening levels and near the recent sell-off lows in low volume trading. From a technical point of view, German yields remain below key resistance levels (2017 tops). Brent crude trades stable a tad below $70/barrel and changes on European stock markets are limited (small losses). 10-yr yield spread changes versus Germany widen up to 2 bps. The Kingdom of Belgium announced the launch of new 10-yr syndicated benchmark (OLO 85 Jun2028) in the near future (likely tomorrow).
The trends in the dollar and the euro from the end last week continued unabatedly today even as US markets are closed in observance of Martin Luther King Day. EUR/USD enjoys further follow-through gains after Friday’s break above the 1.2092/1.2167 resistance, pushing the pair to the highest level in more than 3 year. There was little additional news to explain the move. Investors continue to adapt positions as the minutes from the December meeting indicated that the ECB will probably change its communication early this year and prepare markets for a gradual scaling back of policy stimulation. This euro strength coincides with broader USD weakness. USD/JPY is also drifting further south as BOJ-Kuroda sounded optimistic on the economic recovery and on Japan’s inflation going forward. EUR/USD trades in the 1.2280 area. USD/JPY hovers just north of 111.50. The trade-weighted dollar (90.40) trades at the lowest level since the start of 2015.
Sterling remains in good shape. Cable profits from the overall decline of the dollar. The pair has rebounded to the 1.38 area, revisiting the levels that were on the screens at the at time of the outcome of the Brexit referendum in June 2016. In technical trade, EUR/GBP gained a few ticks. The pair trades again in the 0.89 area. Even so, the gains of EUR/GBP remain modest given the upswing in EUR/USD, confirming recent signs of sterling resilience as markets ponder the chances of a soft Brexit. Tomorrow, the focus will turn to the UK December CPI.
News Headlines:
The EMU trade surplus widened further in November to its highest in eight months. Exports growth outpaced imports, despite a stronger euro. Eurostat reported an EMU trade surplus to €26.3 bn, up from €18.9 bn in October.
Brent crude oil hovered within reach of a three-year high near $70 p/b a barrel. Production cuts by OPEC and Russia are still reported to tightening supplies, but analysts are warning of "red flags" due to surging US production.
Economic activity in Brazil expanded for a third straight month in November. The economic activity index of the central bank rose 0.49% from October. The report is an indication that the momentum in the economy probably improved further at the end of 2017.
Scotland will suffer a 8.5% hit to the size of its economy by 2030 if Britain leaves the EU with no trade deal, the Scottish regional government said in an economic impact assessment. Scotland’s first minister Nicola Sturgeon, said Britain remaining in the EU’s single market, if not the bloc itself, was now the best realistic option but it would still hurt Scotland.
