Investor sentiment has become more balanced. The headlines didn’t provide enough positive news to continue yesterday’s rally. The debate over the US fiscal stimulus continues as the Democratic Party prepares a new proposal, but it remains highly uncertain whether a deal is possible as US election fever increases. European stocks show limited losses of less than 0.5%. The US markets are not opening much. EMU data was mixed. EC economic confidence has rebounded more than expected from 87.5 to 91.1, but is unable to eliminate uncertainty about the fallout from the recent surge in corona infections and its impact on the growth of the fourth trimester. German HICP inflation unexpectedly declined by -0.4% M / M to be 0.4% lower on an annual basis (-0.1% Y / Y was expected). Spanish inflation also printed lower than expected at -0.6% Y / Y. The data does not significantly change the ECB scenario. Still, they support the doves case as the debate over more stimuli continues. The impact on European bonds was limited. German yields fall between 0.2bp (2yr) and 1.5bp (30yr). The Bund’s future (174.75) is getting closer and closer to the 175 resistance zone. Italy successfully sold the highest expected amount of EUR 8.25 billion in three installments. 10-year intra-EMU spreads against Germany tightened slightly (Italy -2 bps). U.S. yields have changed little as investors reflect on the potential impact of the U.S. presidential campaign with Donald Trump and Joe Biden holding their first debate tonight. Will the election finally become a motor for US markets and / or world trade?
Trading on major USD cross rates showed no consistent trend. Yesterday, the dollar lost ground in a global context of risk. Today, the US dollar kept a temporary negative bias even as sentiment was increasingly cautioned. Interestingly, EUR / USD is trying to regain previous support at 1.1696 despite low inflation (Spanish and German). The move was likely supported by a better offer for EUR / JPY (123.60 area) and USD / JPY (106.60 area) through cross rates. Today, the British pound could not build on yesterday’s optimism of a Brexit deal. Uncertainty over Brexit, the economy and the additional BoE stimulus remains high. EUR / GBP is changing hands north of 0.91.
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The ruble and Turkish lira which suffered from rising geopolitical and military tensions in Azerbaijan and Armenia remained under pressure, although sales eased a bit throughout the day. The Turkish Lira hit another historic low against the Euro (high area of 9.17 EUR / TRY). EUR / RUB also hit a multi-year low north of 93. Besides geopolitics, markets are looking for (additional) action from central banks. Russia’s central bank has announced that it will sell $ 2 billion in foreign exchange reserves over the next three months. Although potentially favorable to the currency, the Bank has indicated that it does not view it as foreign exchange intervention. The image of EC currencies is mixed. The Czech crown and the Hungarian forint are struggling to rebound from recent lows. The zloty posted a remarkable outperformance with EUR / PLN rising from the 4.59 area to 4.53 area. Political member CB Gatnar said high inflation is a signal that extremely low interest rates can hurt the economy. He advocates the standardization of policies in 2021.
the South Africa’s unemployment rate unexpectedly fell from 30.1% in Q1 to 23.3% in Q2. however, details show a less pink picture. The labor force participation rate (employment + unemployed as a percentage of the population) fell from 60.3% to 47.3%, with the employment-to-population ratio falling to only 36.3%. The total number of employed South Africans rose from 16.4 million to 14.1 million. South Africa is forecasting a double-digit drop in GDP this year (-11.5% of GDP), having suffered two recessions in two years before COVID-19 even struck. The South African Rand is nevertheless benefiting today with USD / ZAR back below 17.
The Spanish cabinet today approved a vast social protection package, including among other things the extension until January of the ERTE leave scheme (which will expire tomorrow) and an extension of the ban on eviction of vulnerable tenants. Around 800,000 employees remain at ERTE, against 3.4 million in the spring. However, the number is rising again as the low season approaches and as Covid-19 infections require stricter measures.