- It has been a calm session with no market moving news or releases.
- Ireland takes another step towards regaining full market access.
- Focus today on German factory orders, euro area retail sales and the US NFIB small business survey.
It has been a relatively calm session overnight with no market moving news or releases. European stock indices ended down as some investors took profit after a strong rally that started mid-November. Despite yesterday’s setback Euro Stoxx is up by more than 10% since mid-November. The negative sentiment from European trade carried over to US equities. The S&P500 ended the session down by 0.3%. Asian stock markets are trading in negative territory this morning. Nikkei is down 0.8% and Hang Seng is down 0.5%. The S&P future has decreased slightly in Asian trade.
The Irish Debt Management Office (NTMA) announced yesterday just before closing that it will be tapping (through syndication) the IRISH Oct-17. This is another step in the right direction in order to gain full market access for the Irish government and shows that the financial markets continue to believe in the Irish recovery. The Irish 5-year government bond sold off slightly after the announcement and ended the trade 12bp higher compared to the opening with a yield of 3.24%.
Irish sovereign bonds have had a strong performance since summer when the same bond traded with a yield close to 6%. Our government bond strategists expect the spread between Ireland and Italy to converge and for the spread to Germany to tighten towards 200bp from the current level of 270bp.
Japan continues to explore ways that could weaken the yen. Finance Minister Taro Aso has - according to Bloomberg - said that Japan will buy bonds issued by the European Stability Mechanism. The purchases will be funded by Japan’s foreign exchange reserves and could help weaken the yen. The size of the purchases has yet to be decided. Following the announcement EUR/JPY increased slightly but the movement was quickly erased. Since mid-November the yen has weakened about 12% relative to the euro. Note though, that the yen has strengthened against its major counterparts over the past two days.
In FX markets EUR/USD continued to edge higher overnight and is this morning trading around 131.3. US Treasurys have held on to Friday’s gains and Monday’s trade was characterised by a very narrow range. The yield on the 10-year notes ended the trade at 1.89%.
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