Sunset Market Commentary

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The German Bund’s price movement was insignificant today despite ongoing Italian budget troubles. FM Tria defended the government’s controversial budget proposal in Italian parliament this morning, but the budget watchdog is rumored to reject it, pushing the Italian BTP futures lower. The normal correlation between Italian BTP’s and German Bunds didn’t take place as Bunds edged lower too at European openings. There was some back and forth bickering between the EU and Italy, but both parties don’t deviate from their positions. US Treasury markets were back open after yesterday’s Columbus holiday and behaved in similar way to the Bund. Both moved southwards up until noon, to recover afterwards and currently hover around yesterday’s close. US NFIB small business optimism remains near the cycle top, but couldn’t inspire trading. German yields changes range between +0.1 bp (2-yr) and +1.8 bps (10-yr).US yields are declining marginally with changes ranging from -0.4 bps (2-yr) to -0.9 bps (10-yr). The Italian-German 10-yr yield spread widens 3bps to 306 bps. Portuguese and Spanish spreads both widen by 2 bps. Greece recovers somewhat from yesterday’s widening (+18 bps) and closes it with 5 bps.

Global uncertainty remained the main driver for FX trading. Asian/Chinese equities failed to break recent downward momentum. EM tensions persist. At the same time, European investors were still perturbed by political noise on the Italian budget. Fin Min Tria advocated a constructive dialogue with EU and indicated that current spread levels for Italian government bonds are not justified. At least for now, his call for calm wasn’t picked up by markets. EUR/USD dropped below the 1.1460 ST support area. Sentiment on risk eased slightly as US traders joined the action. This relative calm also eased intraday pressure on the likes of EUR/USD and EUR/JPY. EUR/USD is changing hands in the 1.1455 area. EUR/JPY (129.75 area) tries to prevent further losses below 130. There is no indication that the sources of global uncertainty (EM & Italy) will disappear at once. In this context, the euro remains vulnerable.

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Sterling traders were still haunted by a huge batch of diffuse, often conflicting headlines coming from different stakeholders in the Brexit process. Comments from those stakeholders, including DUP learder Arlene foster, mostly contained a goodwill intention, confirming the aim to reach an agreement. At the same time, they also reiterated their ‘red lines’. In some kind of erratic trading EUR/GBP jumped an down in the upper part of the 0.87 big figure. Even so, the UK currency maintains recent gains against the single currency . This suggest that investors are still inclined to reduce sterling short exposure, in particular against the single currency, as Brexit negotiations are reaching a make-or-break point ahead of next week’s EU summit. EUR/GBP hovers in the 0.8770 area. Cable dropped from the 1.31 area this morning and trades currently in the 1.3050 area, but this move mainly mirrors USD strength.

News Headlines

The International Energy Agency (IEA) warned the oil price is “entering the red zone”, hurting the global economy. The IEA appealed directly to OPEC to ramp up production as “demand is still very strong” while Venezuelan and Iranian supply slumped. Prices increased another 0.7% today as hurricane Michael forced some oil field shutdowns.

In his struggle against soaring inflation, Turkey’s Finance minister Albayrak struck an agreement with the private sector to cut prices “voluntarily” with at least 10%. To enforce compliance Erdogan called upon Turks to tattle unusual price hikes by stores. Other measures include freezing energy prices and an acceleration of VAT rebates.

South African president Ramaphosa is due to decide about the future of his minister of Finance Nene, following an anti-graft inquiry. His departure would erode investors’ confidence in the country further and another new finance minister would only have weeks to deliver a new mid-term budget. USD/ZAR tested the 15-area before recovering.
 
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