Headlines - externalcontent.blob.core.windows.net · Thursday, 28 November 2019 . P. 3 . Af German 10-yr yield: painting double bottom on charts. Targets are -0.25% and -0.13%. US

Thursday, 28 November 2019

P. 1

Rates: US president Trumps signs the Hong Kong bill

Trump signing the Hong Kong bill prompted an immediate backlash from both the Hong Kong and Chinese government. Asian markets trade in red, core bonds trade higher. The US is closed for Thanksgiving today so focus turns to the EU. European data (EC confidence, German inflation) might weigh on the Bund.

Currencies: EUR/GBP nears key support as poll suggests solid Conservative majority

Yesterday, solid US eco data supported the dollar and pushed EUR/USD toward the 1.0989 neckline, but a real test/break didn’t occur. USD/JPY touched a new ST top. Today, the focus turns the EMU confidence data and German CPI. Will the euro profit from better EMU data? Sterling jumped higher after a poll suggests a solid majority for the Conservative party.

Calendar

• US equities capped fresh records on the back of solid US eco data and upbeat sentiment. The Nasdaq (+0.66%) outperformed. Asian markets are mostly colouring red as trade optimism faded. South Korea underperforms (-1%).

• US president Trump backed Hong Kong protestors by ratifying the Hong Kong Human Rights and Democracy Act. The move was strongly objected by China that threatens retaliation and risks disrupting ongoing trade negotiations.

• The YouGov poll, a widely anticipated and predictive survey, foresees UK’s Boris Johnson and his Tories to be on course for a comfortable 68-seat majority at the 12 December general election.

• Japan’s retail sales plunged 14.4% (M/M) in October, the steepest drop since 2015. A sales tax hike and a typhoon prompted consumers to curb spending. The weak number casts a shadow over the strength of Japan’s domestic demand.

• Turkey’s central bank is set to take steps boost credit (growth) in specific sectors of Turkey’s recession-hit economy, kicking off with adjusting reserve requirements to squeeze more credit from lenders, Reuters reported.

• ECB’s Villeroy announced today that the central bank is reviewing its policy with the major priority being clarifying its inflation target. The ECB aims to shed light on its various time horizons as well as its commitment to symmetry.

• Today’s economic calendar is quite thin. The euro area economic confidence indicator for October is due. Germany and Spain publish preliminary inflation numbers and Italy issues bonds. US markets are closed for Thanksgiving.

Headlines

Thursday, 28 November 2019

P. 2

Trump signs Hong Kong bill

Core bonds initially held a sideways pattern yesterday but US Treasuries eventually underperformed the German Bund on solid US data. Price data ended close to consensus but activity figures beat expectations with quite some margin. US Q3 GDP was revised to 2.1 q/q annualized (vs. 1.9%). Capital goods shipments, a proxy for investments, rose 0.8% against an expected 0.2% decline. Mixed bidding metrics for the 7 year $32bn US bond auction had little impact. The US yield curve bear flattened with yields rising 4.3 bps (2-yr) to 2.5 bps (10-yr). German yield changes were negligible. Peripheral spreads widened with Greece and Italy (+4 bps) underperforming.

Asian markets are having an off day with equities falling up to 1% (South Korea). Trump signed the Hong Kong bill yesterday late, out of respect for China’s Xi and the Hong Kong people, the president said. The move prompted a backlash from the Hong Kong and Chinese government with the latter repeating its retaliation threat. Investors are worried it might thwart the already tricky trade talks. Core bonds are trading higher. After Fed’s Brainard disclosed her ideas about the ongoing policy review, the ECB’s Villeroy launched his during a speech in Japan this morning. He said the central bank’s first priority should be stressing the symmetry of its 2% inflation target. He also suggests to lift the separation between monetary and macroprudential policies, instead arguing both should be combined as to deliver the appropriate monetary stance while choosing instruments that minimise financial stability risks. He also proposed to look into how climate change can be incorporated in the bank’s policy analysis.

US financial markets are closed for Thanksgiving, decimating today’s trading volumes. We’ll be watching the EC’s economic confidence indicator and German inflation today. The first is expected at 101 for November. That would be just a tad higher than the 100.8 in October but it could be considered further evidence of a continued bottoming out process in the euro zone. German November inflation is expected at -0.6% m/m (1.4% y/y). We think there’s room for an upward surprise, especially in the year-on-year metric. Although inflation is of rather secondary importance, it might weigh on the Bund in combination with the EC confidence.

Technically, the German 10-yr yield and US 10-yr yield both rebounded away from August lows following ECB/Fed September policy meetings. The German 10-yr yield broke above -0.41% resistance as geopolitical uncertainty diminished, improving the technical picture. Targets of this double bottom formation are -0.25% and -0.13%. The 38% retracement level of the Oct-Aug decline stands at -0.24%. The US 10-yr yield trades in the 1.43%-1.94% sideways trading channel. First tests to take out 1.94% failed, causing corrective return action lower.

Rates

Thursday, 28 November 2019

P. 3

Af

German 10-yr yield: painting double bottom on charts. Targets are -0.25% and -0.13%.

US 10-yr yield: first tests of upper bound of sideways trading range between 1.43% and 1.94% failed.

Thursday, 28 November 2019

P. 4

EUR/USD tests 1.0989 support, but break avoided (for now).

EUR/GBP: sterling propelled as poll suggests solid Conservative majority.

EUR/GBP nearing key support Yesterday, the dollar extended a gradual rise for most of the day. The move accelerated as the early morning US data (GDP, claims and durable orders) printed strong. Interest rate differentials widened in favour of the US dollar. EUR/USD came close to the 1.0989 neckline, but a break didn’t occur. The US core PCE deflator printing softer than expected, eased the USD bid. A UK election poll showing a comfortable lead for the Conservative party gave EUR/USD downside protection too. EUR/USD closed at 1.0999. Mostly solid US data and further equity gains also propelled USD/JPY to a new ST top, closing the day at 109.54. Risk sentiment turned less upbeat overnight. US president Trump signed a bill supporting the protesters in Hong Kong. This might complicate the US-China trade talks. Even so, the correction of Asian equities remains modest. The yen rebounded (USD/JPY 109.45 area). Poor Japanese retail sales were largely ignored. The yuan is little changed (USD/CNY 7.0285). EUR/USD hovers just north of 1.10. The Aussie dollar also stays under pressure (0.6765 area). Today, US markets are closed for Thanksgiving. (European) equities will probably take a soft start after President Trump signed the Hong Kong bill overnight. This might be a tentative USD negative. Regarding the data, the EC confidence data and German CPI are worth looking at. In both cases, we look out for signs of bottoming after recent poor data. The PMI’s and the Ifo recently showed that a ‘real’ upward surprise is probably needed for the euro to profit from EMU eco data. Last week, a minor EUR/USD rebound was blocked near 1.11, leaving the pair in an unconvincing trading pattern. Yesterday, EUR/USD came close to the 1.0989 support, but a break didn’t occur. A return below 1.0989 would deteriorate the ST picture. The 1.0879 correction low is the next reference on the technical charts. A rebound back above 1.11 would call off the ST downward alert. Ongoing low volatility is in theory slightly USD supportive (carry). Sterling resumed its uptrend after a pause earlier this week yesterday. The move accelerated after a YouGov poll indicated that the Conservative party could succeed a solid majority in the Dec 12 election. EUR/GBP drifted to the low 0.85 area. The pair is nearing the 0.8490/72 key support area. A break would (materially) improve the technical picture for the UK currency.

Currencies

Thursday, 28 November 2019

P. 5

Thursday, 28 November Consensus Previous US Financial markets closed for Thanksgiving Japan 00:50 Retail Sales MoM/YoY (Oct) -14.4%A/-7.1%A 7.2%R/9.2%R UK 08:00 Nationwide House NSA YoY (Nov) 0.20% 0.40% EMU 10:00 M3 Money Supply YoY (Oct) 5.50% 5.50% 11:00 Economic Confidence (Nov) 101 100.8 11:00 Business Climate Indicator (Nov) -0.14 -0.19 11:00 Industrial Confidence (Nov) -9.1 -9.5 11:00 Services Confidence (Nov) 8.8 9 Germany CPI Baden Wuerttemberg MoM/YoY (Nov) --/-- 0.10%/1.10% 09:00 CPI Saxony MoM/YoY (Nov) --/-- 0.10%/1.00% 10:00 CPI Brandenburg MoM/YoY (Nov) --/-- 0.00%/1.10% 10:00 CPI Hesse MoM/YoY (Nov) --/-- 0.10%/1.20% 10:00 CPI Bavaria MoM/YoY (Nov) --/-- 0.10%/0.90% 10:30 CPI North Rhine Westphalia MoM/YoY (Nov) --/-- 0.10%/1.20% 14:00 CPI MoM/YoY (Nov P) -0.60%/1.20% 0.10%/1.10% 14:00 CPI EU Harmonized MoM/YoY (Nov P) -0.70%/1.10% 0.10%/0.90% Spain 09:00 CPI EU Harmonised MoM/YoY (Nov P) 0.10%/0.50% 0.70%/0.20% Events 04:30 ECB's Villeroy speaks in Tokyo 11:00 Italy to Sell Bonds 17:35 ECB Board Member Coeure Speaks in Paris 21:00 ECB Chief Economist Lane Speaks in Dublin

Calendar

Thursday, 28 November 2019

P. 6

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 1.77 0.02 US 1.63 0.04 DOW 28164 42.32DE -0.37 0.00 DE -0.63 0.00 NASDAQ 8705.175 57.24BE -0.07 0.00 BE -0.63 0.00 NIKKEI 23409.14 -28.63UK 0.68 0.03 UK 0.51 0.02 DAX 13287.07 50.65

JP -0.08 0.03 JP -0.18 0.02 DJ euro-50 3712.85 7.30

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y -0.32 1.59 0.77 Eonia -0.4480 0.00005y -0.24 1.58 0.79 Euribor-1 -0.4480 0.0030 Libor-1 1.7016 0.000010y 0.04 1.69 0.89 Euribor-3 -0.4000 -0.0010 Libor-3 1.9086 0.0000

Euribor-6 -0.3420 -0.0040 Libor-6 1.9143 0.0000

Currencies Close -1d Currencies Close -1d Commodities Close -1d

EUR/USD 1.0999 -0.0022 EUR/JPY 120.47 0.30 CRB 180.35 -0.75USD/JPY 109.54 0.49 EUR/GBP 0.8513 -0.0053 Gold 1460.80 -6.60GBP/USD 1.2921 0.0055 EUR/CHF 1.0992 -0.0001 Brent 64.06 -0.21AUD/USD 0.6776 -0.0012 EUR/SEK 10.5378 -0.0313USD/CAD 1.3282 0.0010 EUR/NOK 10.0765 -0.0296

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Rates: US president Trumps signs the Hong Kong billCurrencies: EUR/GBP nears key support as poll suggests solid Conservative majorityYesterday, solid US eco data supported the dollar and pushed EUR/USD toward the 1.0989 neckline, but a real test/break didn’t occur. USD/JPY touched a new ST top. Today, the focus turns the EMU confidence data and German CPI. Will the euro profit from...Calendar