Investors shrugged at the sharp and larger-than-expected drop in the November Conference Board consumer confidence yesterday. The decline from 100.9 to 96.1 was largely due to deteriorating expectations (9 points lower to 89.5) about the future environment as the virus resurged also in the US. Focus instead was on the Biden-Yellen market themes that emerged already during the Asian session. European equities rose more than 1%. Wall Street edged up about 1.5% with the DJI surpassing 30 000 for the first time ever and a record close in the S&P500. Cyclicals, including energy and financials, led the way. Brent oil prices advanced once agai, coming closer within reach of the symbolic $50. Core bonds fell, USTs underperforming. The US yield curve bear steepened with changes varying from flat (2-yr) to 5.2 bps (30-yr). Yields did retreat from intraday highs after a solid 7-year auction. German yields rose 1 bp (2-yr) to 1.8 bps (10-yr), the latter confirming the lower bound of the upward trading range as a support area. EUR/USD traded volatile. Its morning rise was capped by an afternoon comeback by the dollar. The greenback lacks strong momentum though. EUR/USD managed a close higher still shy of 1.19. The trade-weighted dollar finished dangerously close to the 92.15 support. Sterling took a breather after the recent strengthening. Technical trading sent EUR/GPB near the 0.89 pivot.
Overnight news is limited, leaving Asian-Pacific trading up to sentiment and technical considerations. Markets opened in the green in the wake of Wall Street's records this morning. Indices are off best levels however. China underperforms. Core bonds erased opening losses. The USD kicked off vulnerable. EUR/USD ventured north of 1.19 and the DXY came very close to the 92 handle before recouping losses. USD/JPY is going nowhere in the 104.5 zone.
Initial and continuing jobless claims are scheduled for today. A further easing is expected. October durable goods orders and PCE inflation is worth watching but are unlikely to materially influence traders. The FOMC meeting Minutes could spur some volatility as markets look for clues for potential easing in December. That said, we don't think any of the afore mentioned will affect the recent investor sentiment in the run-up to tomorrow's US holiday (Thanksgiving) though. Also from a technical perspective (EuroStoxx50 clears 76.1% hurdle, DJI, S&P500) the stars remain aligned for riskier assets. We assume the current Asian upside in core bonds as well as the dollar thus to be capped. We keep a close eye at the 1.19 area in EUR/USD. Several attempts to leap higher so far failed but a (technical) dollar comeback is far from convincing either. Sterling awaits but probably already discounted British minister of finance Sunak's spending announcement for next year. He is expected to announce another 4.3 billion pounds of new funding. EUR/GBP tested the important 0.8865 Monday before recovering yesterday. We assume the bottoming out to continue.
According to an article in the Financial Times, vice-chair of the ECB supervisory board, Yves Merch, indicated that EU banks could be allowed to pay dividends again from next year, if they can convince supervisors that their balance sheets are strong enough to bear the fall-out from the corona pandemic. Merch cited legal uncertainty on the enforceability of the dividend ban and the prospect of other countries allowing banks to restart payouts.
In the annual policy address, Hong Kong Chief Executive Carrie Lam said her administration wants to restore confidence. In this respect, Liam indicated that the economy of Hong Kong can benefit ‘from its proximity to the mainland and the central government's long-standing support under the one country two systems principle'. Aside from strengthening ties with the mainland, Lam also signaled additional measures to support the economy. Amongst others, Hong will take measures to support the (commercial) property sector and to support tourism sector.
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