With the Pacific G10 Macro Rates Team
Global Macro Overview
A very quiet week in the rates markets, with 10y US Treasuries stuck in a 15bps range. Trade related headlines continued to drive the markets. As uncertainty increased about a Phase 1 deal in 2019, the S&P 500 sold-off after reaching new highs and bonds rallied. Economic data was broadly in line with consensus across the globe and hence didn’t affect financial markets that much.
US: This week we received updates regarding the housing market and consumer and corporate sentiments. Data was stronger across the board. Housing starts increased 1,314k in Oct (1,320k exp., 1,266k prev.) and home sales increased 5.46m (5.49m exp., 5.36m prev.); Markit PMIs were strong at 52.2 for Manufacturing (51.4 exp., 51.3 prev.), 51.6 for Services (51 exp., 50.6 prev.); Consumer Sentiment came in at 96.8 vs. 95.7 exp. and prev. with strong Current Conditions and Expectations. Markit survey has consistently stayed more optimistic than more widely watched ISM, nevertheless this week numbers are encouraging and confirm that US economy is beginning to stabilise.
Canada: Data this week has been strong, reducing probability of a near-term cut priced in the markets. CPI has remained remarkably stable and close to BoC 2% target, with all 3 core metrics printing within 0.3% range around the target. Retail sales in September have been stronger than expected and August numbers were revised higher, especially ex-auto.
Eurozone: ECB president Lagarde spoke for the first time this week on the economy. She was pushing for smarter fiscal spending, more federal structure of the monetary union and promised a near-term review of the ECB policy. Out of the important data, only Markit PMIs were released this week with both France and Germany showing improvements in manufacturing and slow-down in services, Eurozone Composite PMI however slid to 50.3 from 50.9 sending EUR interest rates lower.
No important data from Scandinavia.
PMIs are showing signs of stabilising, with headline number increasing slightly to 49.9 from 49.1 and both Services and Manufacturing higher than in October. CPI has surprised to the upside, especially core measure that increased to 0.7% yoy (0.6% exp., 0.5% prev.). However sales were mixed in October and exports have intensified their decline from -5.2% to -9.2% yoy in October.
First broadcasted debate between Johnson and Corbyn didn’t produce a clear winner, however leading in polls Johnson was very uninspiring and failed to move much beyond the BrExit issue. First ever preliminary PMIs in the UK were very disappointing and indicating contraction across Services and Manufacturing with the former printing at 48.6 (50.1 exp., 50 prev.) and the later at 48.3 (48.9 exp., 49.6 prev.)
Australia: Main event of the week was the release of the minutes from November RBA meeting that were taken as dovish by the market with AUD selling off and yields rallying. Preliminary PMIs released by CBA were disappointing, sliding below 50 for both Manufacturing and Services surveys. ANZ Consumer Confidence has weakened slightly.
No major data from New Zealand.
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