All eyes remain on Westminster
Rates
Global core bonds drifted lower last Friday in low-volume circumstances. Investors were reluctant to adapt/add positions ahead of UK parliament's extraordinary Saturday session. The German yield curve bear steepened with yields rising by 0.3 bps (2-yr) to 3.3 bps (30-yr). 10-yr yield spread changes vs Germany ended narrowly mixed with Greece (-10 bps) outperforming. The US yield curve steepened as well with daily changes varying between -2.6 bps (2-yr) and +1.5 bps (30-yr). The outperformance of the front end of the curve probably had something to do with Fed Vice-Chair Clarida's comments. He said that the US central bank will act as appropriate to sustain the economic expansion as risks remain evident. With the black period now kicking in, his comments were interpreted as a final nod for a third consecutive policy rate cut at the October Fed meeting.
An effective vote on Johnson's Brexit deal eventually didn't occur with MP's voting instead for amendments that slow the process. The government added a meaningful vote on Johnson's Brexit deal again on today's parliamentary agenda, but the House speaker is expected to block it for judicial reasons. Tomorrow, the government will try to seek a majority when legislation implementing the deal is put to a vote. The FT suggests that Johnson might win the vote with an extremely narrow 5-seat majority.
Most stock Asian markets are trading with small gains this morning with India closed. The German Bund and US Note future tread water. Today's eco calendar is razor thin. We expect trading action to resemble the one on Friday with all eyes directed on the UK parliament. PM Johnson. Markets remain positioned for a positive outcome. This week's eco calendar is more backloaded with Thursday probably key. ECB President Draghi attends his final ECB meeting while US VP Pence gives a key speech on China. On the data front, we get October EMU PMI's. Q3 Earnings remain a wildcard.
Technically, the German 10-yr yield and US 10-yr yield both rebounded away from August lows following ECB/Fed September policy meetings. Risk sentiment and eco data drove action within sideways ranges since. The German 10-yr yield broke above -0.41% as Brexit deal hopes surged. Target of this double bottom formation are -0.25% and -0.13%. The 38% retracement level of the steady decline between October and August stands at -0.24%. A sustained break however requires the Brexit deal to be approved in UK parliament.
Author
KBC Market Research Desk
KBC Bank
KBC's Market Research Desk publishes a number of short-term reports.
