A string of dissatisfying US tech earnings triggered a sharp sell-off in US after-market hours yesterday. The risk-off repositioning for the first time this week rolled-over into Asian dealings and into the European open as well (about 1% lower). Q3 GDP growth figures in Europe were all better than expected (see below). The figure euro zone wide came in at 12.7% q/q vs. 9.6% expected. That’s still down -4.3% year-on-year though. We’d warn against reading too much in these outdated numbers and don’t think they are the actual reason for European risky assets to have found a better bid (temporarily) throughout the day. Early losses evaporated as the session evolved with most EMU stocks now trading near flat in technical and choppy trading. Sentiment turned again with the waking up of WS though. Losses for the tech-heavy Nasdaq are about 2%, losing the 11 000 mark. Core bonds were well supported during the Asian risk-off but gradually lost some shine. The German Bund (176.15) outperformed once again and remains close to the contract high of 176.4. Yields trade unchanged. The 10-yr yield (-0.63%) tested support at -0.64% once again during early dealings. Peripheral bond spreads tighten marginally. US yields add about 1.5 bps at longer maturities. Anticipation of post-election stimulus, Republican or Democratic, currently dominates over the delicate risk sentiment, preventing a sustained return of the US 10-yr yield in the sideways trading range.
FX markets trade rather calm. The dollar had a nice run yesterday but that move already peters out today. EUR/USD fell below important support at 1.1696 yesterday in the wake of the dovish ECB but there are no follow-through losses. The currency pair changes hand near opening levels of 1.169. The trade-weighted dollar (DXY) tested 94 yesterday but looming election uncertainty is keeping dollar bulls at the sidelines going into the weekend. The Czech krone isn’t really convinced by the Czech GDP (see below), trading only marginally higher. Other CE currencies, including the Polish zloty and Hungarian forint, fail to really depart from their 2020 lows. EUR/GBP tested the support area at 0.90 this morning and remains close within its range (0.901). There is very little news about the ongoing Brexit talks. The past has shown that this is often a positive sign and it might well be that markets are assuming the same. However, with a notoriously binary issue like Brexit, investors don’t want to be wrong-footed, thus limiting their outright pound exposure. In any case, we wouldn’t be surprised if the weekend would yield the much-awaited “breakthrough” progress.
Economic activity in the EMU rebounded a much stronger than expected 12.7% Q/Q in Q3 after a 11.8% contraction in Q2. Still, EMU activity in Q3 contracted 4.3% Y/Y (was 14.8% in Q2). France took the lead in the Q3 economic rebound (18.2% Q/Q), but growth in Germany (8.2% Q/Q ), Italy (16.1%) and Spain (16.7%) were also reported well above market expectations. However, the rebound in activity didn’t help to lift October inflation. Headline CPI (-0.3% Y/Y) and core CPI (0.2% Y/Y) were unchanged from last month.
Activity in the Czech Republic rebounded 6.2% Q/Q in Q3 after a contraction of 8.7% in the second quarter. Q3 growth was expected at a more modest 5.0% Q/Q. Activity in the Czech republic was still 5.8% lower in real terms compared to the same period last year. Details on the composition of growth will only be available on Dec 1. The Czech koruna rebounded to EUR/CZK 27.26 after losing (modest) ground earlier this week.
In Poland, October inflation declined slightly more than expected from 3.2% Y/Y to 3.0%. Food (+2.3% Y/Y) and electricity and gas (+4.8% Y/Y) rose. Fuel prices declined 9.2% Y/Y. The zloty (EUR/PLN 4.62) rebounds slightly after more substantial (risk-off) losses earlier this week, but the EUR/PLN 4.64 peak stays within reach.