Key news
US equity markets declined yesterday and sent the S&P500 to the lowest level in a month, as concern grew that Europe’s debt crisis will worsen and US lawmakers will fail to agree on plans to cut the US deficit. The S&P 500 lost 1.7% yesterday as a euro-area official was quoted as saying there are no aid plans for Italy from the EFSF. On top of this Spanish bonds sank as borrowing costs climbed to 7% at yesterday’s auction. In the US the Republicans and Democrats on Congress’s Super Committee hardened their positions with less than a week until the deadline to propose deficit cuts, so again the markets are looking at a stalemate on the US fiscal policy. The deadline is 23 November.
We have also seen a steady decline in Asian equity markets this morning amid concern about the levels of bad loans in China’s property sector and the EU debt crisis. Chinese regulators have supposedly told lenders last week to step up asset sales and debt restructuring for struggling local government financing vehicles. The regulators have stated that some projects may run out of funds and banks should cut “high-risk” loans to developers, according to anonymous sources.
Not surprisingly, we saw US bond yields decline on the back of the problems in the euro area and the negative sentiment in the US stock market. Again investors are flocking to the safe-haven countries. The US Treasury curve flattened from the long end, and the 10Y TIPS auction was met with good demand.
In the FX markets movements has been modest in Asian trade; the euro is still trading at the 1.34-1.35 level against the dollar with clear risk of a further weakening (see below). USD/JPY has also remained range bound around the 77-level. No major movements in either SEK or NOK versus the euro this morning as EUR/SEK is trading at the 9.16-level and EUR/NOK is trading at the 7.80-level.
Global Daily
Focus today: Attention will continue to be on the European bond market where it appears that only the ECB will be able to make a difference in the short run. In Italy the new government led by Prime Minister Mario Monti is expected to be approved today in connection with the final confidence vote in the Lower House. In Spain there will be a general election on Sunday. The opposition People’s Party is far ahead in the polls and the only question is whether it will get an absolute majority in the parliament or, like the previous Socialist government, will be dependent on some smaller regional parties. There are no key economic data on the agenda today, but there will be a flood of speeches. Most importantly, ECB president Draghi will speak in Frankfurt at 9:00 CET followed by Smaghi and Weidmann at 9:30. German Finance minister Schäuble will speak at 12:00 CET.
Fixed income markets: The pressure on the European sovereign bond markets continues to intensify. Spanish 10yr bond yields temporarily moved above 7% yesterday and have been trading with a spread above 450bp to Germany over the last couple of days. Thus LCH could announce a margin requirement anytime soon, which would just add to the already elevated level of stress in the market.
FX markets: Very thin calendar today so all focus on the ongoing debt crisis. The relentless widening of Spanish government yields relative to Germany continues to weigh on sentiment. However, it seems that it has become more difficult to push EUR/USD lower after the latest sell-off. In our view it reflects that the speculative part of the market has now become very short EUR/USD. However, we still believe it is just a matter of time before we see the next leg lower in EUR/USD, and therefore we do recommend to sell the euro on relief rallies. Commodities came under severe pressure yesterday as the global growth scare spooked the market, and we should expect further pressure on commodity currencies today. Note how stable EUR/CHF is in this environment. It probably reflects that the market continues to fear a lifting of the SNB minimum target as early as December.
Scandi Daily
No key financial data releases in Scandinavia today.
- Negative sentiment continues to dominate the global equity markets on the back of the EU debt crisis, while flight-to-quality is driving the global bond markets.
- Modest movements in the major FX crosses, where euro remains weak against the dollar and yen.
- Still focus on the EU debt crisis ahead of the Spanish general election this weekend
US equity markets declined yesterday and sent the S&P500 to the lowest level in a month, as concern grew that Europe’s debt crisis will worsen and US lawmakers will fail to agree on plans to cut the US deficit. The S&P 500 lost 1.7% yesterday as a euro-area official was quoted as saying there are no aid plans for Italy from the EFSF. On top of this Spanish bonds sank as borrowing costs climbed to 7% at yesterday’s auction. In the US the Republicans and Democrats on Congress’s Super Committee hardened their positions with less than a week until the deadline to propose deficit cuts, so again the markets are looking at a stalemate on the US fiscal policy. The deadline is 23 November.
We have also seen a steady decline in Asian equity markets this morning amid concern about the levels of bad loans in China’s property sector and the EU debt crisis. Chinese regulators have supposedly told lenders last week to step up asset sales and debt restructuring for struggling local government financing vehicles. The regulators have stated that some projects may run out of funds and banks should cut “high-risk” loans to developers, according to anonymous sources.
Not surprisingly, we saw US bond yields decline on the back of the problems in the euro area and the negative sentiment in the US stock market. Again investors are flocking to the safe-haven countries. The US Treasury curve flattened from the long end, and the 10Y TIPS auction was met with good demand.
In the FX markets movements has been modest in Asian trade; the euro is still trading at the 1.34-1.35 level against the dollar with clear risk of a further weakening (see below). USD/JPY has also remained range bound around the 77-level. No major movements in either SEK or NOK versus the euro this morning as EUR/SEK is trading at the 9.16-level and EUR/NOK is trading at the 7.80-level.
Global Daily
Focus today: Attention will continue to be on the European bond market where it appears that only the ECB will be able to make a difference in the short run. In Italy the new government led by Prime Minister Mario Monti is expected to be approved today in connection with the final confidence vote in the Lower House. In Spain there will be a general election on Sunday. The opposition People’s Party is far ahead in the polls and the only question is whether it will get an absolute majority in the parliament or, like the previous Socialist government, will be dependent on some smaller regional parties. There are no key economic data on the agenda today, but there will be a flood of speeches. Most importantly, ECB president Draghi will speak in Frankfurt at 9:00 CET followed by Smaghi and Weidmann at 9:30. German Finance minister Schäuble will speak at 12:00 CET.
Fixed income markets: The pressure on the European sovereign bond markets continues to intensify. Spanish 10yr bond yields temporarily moved above 7% yesterday and have been trading with a spread above 450bp to Germany over the last couple of days. Thus LCH could announce a margin requirement anytime soon, which would just add to the already elevated level of stress in the market.
FX markets: Very thin calendar today so all focus on the ongoing debt crisis. The relentless widening of Spanish government yields relative to Germany continues to weigh on sentiment. However, it seems that it has become more difficult to push EUR/USD lower after the latest sell-off. In our view it reflects that the speculative part of the market has now become very short EUR/USD. However, we still believe it is just a matter of time before we see the next leg lower in EUR/USD, and therefore we do recommend to sell the euro on relief rallies. Commodities came under severe pressure yesterday as the global growth scare spooked the market, and we should expect further pressure on commodity currencies today. Note how stable EUR/CHF is in this environment. It probably reflects that the market continues to fear a lifting of the SNB minimum target as early as December.
Scandi Daily
No key financial data releases in Scandinavia today.