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Market Update
Aside from the fact that we are still waiting for confirmation that the EU and UK have been able to agree a deal on their future trading relationship, and that US President Trump is still seemingly opposed to the Congress’s recently passed $900B fiscal aid package in its current form, things are much more-quiet. Indeed, European markets are either already closed for Christmas Eve or closing at 1230GMT. US and Canadian markets also see an early close (at 1800GMT).
In terms of a quick market snapshot then; risk appetite is mixed but with a slightly positive feel to it. US index futures are trading with marginal gains (S&P 500 future up 0.2%), while the European bourses that are actually trading are pretty much flat (FTSE 100 unch., CAC 40 unch. and IBEX 35 +0.3%). Meanwhile, US bond yields are a tad lower (nominal US 10-year yields down 1.2bps to 0.943%, while 10-year TIPS yields are down to about -1.04%), crude oil is a little lower (WTI has slipped back below $48.00/bbl) and precious metals are broadly higher (spot gold up 0.2% in the $1870s and spot silver up 0.7% in the $25.70s) amid soft USD conditions; the DXY slumped back to yesterday’s lows in the 90.10s and is about 0.2% lower on the day, but remains supported above the psychological 90.00 level for now.
Global coronavirus news has been mixed; the German daily death count remains alarmingly high at 802 yesterday (following 962 the day before), US daily deaths are above 3K and the rate at which new cases are being reported in the UK continues to hit fresh all-time highs. Moreover, news out of Malaysia and Singapore suggests the two countries have begun to uncover the new UK-variant. However, Moderna, whose vaccine has already been approved in the US, are confident it will work against the new strains discovered in the UK and South Africa. Moreover, over 1M US citizens have already been vaccinated and over half a million Brits have already been vaccinated, a testament to the speed with which mass vaccination programmes have gotten underway.
GBP and Brexit
As markets wait for an announcement on Brexit with abated breath, GBP is again the outperforming G10 currency; GBPUSD currently trades just under the 1.3600 level up nearly 0.8%, while EURGBP has broken below 0.9000 and into the 0.8970s down roughly 0.6%.
The Irish Foreign Minister this morning said that there had been a last-minute hitch in the talks, but that was to be expected. Separate sources suggest that negotiations on fishing quotas continue and a BBC reported just tweeted that there could be a few more hours of talking left to do. But markets now overwhelmingly expect a deal to be announced, as can be seen in lofty GBP gains already this morning and in the betting odds (implied odds that a deal will be reached prior to the end of the year are above 97% on the markets betting exchange).
In terms of the passage of any deal into law on both sides of the English Channel; a Senior UK parliamentary source speaking to Sky News said that the 30th of December (next Wednesday) is the most likely date for the UK Parliament to meet and approve any Brexit deal. Meanwhile, as reported yesterday, EU leaders are primed to give any trade deal preliminary approval ahead of confirmation in the EU parliament in 2021.
G10 Markets
Photo by Joshua Hoehne.
Aside from the aforementioned strength in sterling, there isn’t too much to get excited about regarding FX markets this morning; G10 FX markets are positioned in a slightly risk on manner, with safe-haven currencies USD, JPY and CHF the laggards and AUD and NZD the best performers after GBP; the former up about 0.3% on the day versus the buck, the latter up about 0.2%. AUDUSD has managed to ease back above the 0.7600 level in recent trade, NZDUSD has managed to grind back above 0.7100. Meanwhile, USDJPY was supported at 103.50 overnight and has moved up towards the 103.60s and USDCHF has reversed higher to the 0.8890s from overnight lows around 0.8870.
Turning to EUR and CAD; both are middling performers, with the former up about 0.1% on the day vs the buck and the latter flat. EURUSD continues to pivot either side of the 1.2200 level and USDCAD is struggling to break below 1.2830 but capped by resistance around 1.2850.
TRY and the CBRT
Outside of the G10, TRY has seen significant strength in wake of a larger than expected hike from the CBRT; USDTRY trades with losses of around 700 pips or 0.9%, the pair slumping to the mid-7.50s from the mid-7.60s after the CBRT hike the one-week repo rate to 17% from 15% (larger than the expected hike to 16.5%) and hiked the overnight lending rate to 18.5% from 16.5% (versus expectations for it to remain on hold). The bank promised further monetary tightening ahead to help dampen souring inflation; “in the forthcoming period, tightness of the monetary policy stance will be decisively sustained until strong indicators point to a permanent fall in inflation in line with the targets and to price stability” the bank said.
Coming Up
Canadian Building Permit figures for November will be released today (a 3% MoM rise expected), but aside from that there is nothing else of note on the calendar. Brexit and any updates regarding the currently blocked passage of US fiscal aid could of course still provoke volatility, most notably if there is a last-minute breakdown in discussions regarding the former.
