More of the Same

Euro Market Jitters

Flat to slightly negative start to equity trading in Europe as investors continue to digest the impact of a series of central bank decisions in the last fortnight. Last week saw some decisive moves in the bond market as the US 10yr breached 4.5% for the first time since 2007 and the 2yr note yield rose above 5.2%, its highest since 2006. Yields declined a touch on Friday but are firming up towards those levels again this morning with the German 10yr bond at a new 12-year high.

Rate Cut Rollercoaster

The higher for longer message is being hammered home and markets are listening. Whether they do maintain such a hawkish stance next year is one for the mystics, but the central banks are clear for now. This morning Francois Villeroy de Galhau, France’s central bank governor, said it’s “premature” to bet on when the first cut will come. They are not even thinking about thinking about rate cuts. Meanwhile this morning’s ifo business climate report from Germany shows another weak reading – last week’s PMIs were pretty awful and Germany looks to be in recession territory.

Asia's Fiscal Flickers

The mood music overnight from Asia was not terribly encouraging - Liu Shijin, a member of the People's Bank of China's monetary policy committee, said China has limited room for further monetary easing and should pursue structural reforms such as encouraging entrepreneurs. 

Meanwhile struggling developer Evergrande said on Sunday it was unable to issue new debt due to an ongoing investigation into its main domestic subsidiary.

Japan: Waiting Game

The Bank of Japan’s governor Ueda meanwhile said it’s too early to determine exactly when it will start to look at ending yield curve control and negative rates. He reiterated the view that exiting ultra-loose monetary policy will require the BoJ to foresee sable and sustainable achievement of 2% inflation target. It’s been 17 months above target, so I don’t really know what they are waiting for. Ueda also said the yen was not a direct target of monetary policy guidance – USDJPY fresh cycle high this morning above 148 is starting to get into intervention territory, though we said that at 145 as well.

Oil & Cable Bounce

Oil futures rose after notching dipping slightly last week, remaining close to their highest since last November following the additional OPEC+ production cuts. Brent settled 0.3% lower on the week, whilst WTI was essentially flat. CFTC data shows speculators added to long positions.

Cable retesting the lows at 1.2230 - RSI very oversold, stochastic showing signs of bottoming