EUR/USD broke below 1.18

Market movers today

  • In Germany, industrial production is set to show a decent increase for October after a drop in September. A rise in factory orders yesterday continued to point to a robust recovery, as does a high level of German manufacturing confidence.

  • Headlines regarding German politics could come back into focus, as the three-day SPD party conference kicks off today, where SPD members will decide whether to enter renewed coalition negotiations for a ‘grand coalition' with Angela M erkel's CDU p arty.

  • US initial jobless claims is the last piece of input on the US job market ahead of the payrolls report tomorrow. Initial claims have hovered around 240k recently, pointing to a strong labour market (see our US Labour Market Monitor: Expect strong November report, 5 December).

  • In the late afternoon, ECB President Mario Draghi will participate in a press conference by the Bank for International Settlement in his role as Chair of the Group of Governors and Heads of Supervision, but this is unlikely to provide material news ahead of the ECB meeting next week.

  • Some interesting Scandi data is due today. Norway is due to release manufacturing production and in Sweden, household consumption and not least average house prices will be followed closely to gauge the temperature of the Swedish housing market (see page two for more).


Selected market news

Asian shares hovered near two-month lows this morning as softer oil and copper prices and uncertainty over US foreign p olicy , following Trump 's announcement to recognise Jerusalem as Israel's cap ital, kep t many investors on the sidelines. Oil prices are trading near two-week lows after a big fall on Wednesday, when a sharp rise in US inventories suggested demand may be flagging, while US crude production hit another weekly record. Eonia remains elevated past the Greek bond swap on Tuesday and the ECB's weekly MRO allotment yesterday and hence the higher fixings can no longer be deemed temporary.

Markets are also still focused on the US tax reform and a potential US government shutdown, although we deem the lat ter unlikely. It now looks increasingly likely that the corporate tax rate will end up at 22% and not 20%, supporting our view that the final tax bill will be a watered down version of what is already on the table, as Republicans struggle to find a common ground on tax revenue raisers in order to finance tax cuts. Yesterday, the Senate also voted in favour of going to conference and Republicans still hope to send a bill to Trump 's desk before y ear-end, although that is still ambitious in our view. Nevertheless, EUR/USD broke below 1.18 yesterday, also helped by growing US tax-reform optimism.

Regarding Brexit, PM Theresa May is still under siege from her own party and the Northern Irish DUP to forge a deal on the Irish border issue. May is said to submit another proposal to Ireland within 24 hours, while the EU has indicated willingness to be flexible on the Brexit deadline ahead of the key summit next week.

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