Key news
- Stocks down more than 2% in US on euro crisis and softer data.
- Failed Bund auction intensifies euro crisis and puts more pressure on core countries.
- US bond yields and EUR/USD decline on falling risk appetite
- Asian markets up as China cuts reserve ratio for six rural banks on growth concerns
- US closed today for Thanksgiving. Main focus euro crisis and German Ifo.
Markets Overnight
The failed German Bund auction yesterday took the euro crisis to its absolute core and increased worries over the crisis getting out of control. While some were referring to technical factors behind the failure it came at a critical time and was broadly viewed as an intensification of the crisis – see WSJ. Italian yields rose again very close to 7% and both Spain and France saw renewed increases in bond yields.
According to Bild Germany is concerned it may have to accept euro bonds. The failed Bund auction puts pressure on Germany to accept euro bonds and other euro member states are likely to intensify the pressure on Germany now.
As the euro crisis escalates there are signs of contagion to the rest of the world. CDS on US banks are climbing higher on concern of exposure to eurozone debt. The CDS on Bank of America rose to a new high of 495 compared with a previous high of 465 in October.
The intensification of the euro crisis sent stock markets into further decline as well. S&P500 closed down more than 2%. Slightly softer US data for durable goods orders and personal spending also weighed on the market.
Asian stock markets rebounded somewhat overnight, apart from Nikkei that was closed on Wednesday and is now catching up with yesterday’s declines. Markets got a small lift from a cut in the reserve ratio for six rural banks in China, which is seen as a sign that more easing could be in the pipeline in China as growth worries increase and the inflation concern is decreasing.
US 10-year bond yields fell further by 5bp overnight to 1.88% before closing for Thanksgiving today. Falling risk appetite and a strong 7-year auction supported the treasury market.
In FX markets EUR/USD came under pressure yesterday and fell below 1.34. USD/JPY moved lower overnight while Scandi currencies are broadly unchanged.
- Stocks down more than 2% in US on euro crisis and softer data.
- Failed Bund auction intensifies euro crisis and puts more pressure on core countries.
- US bond yields and EUR/USD decline on falling risk appetite
- Asian markets up as China cuts reserve ratio for six rural banks on growth concerns
- US closed today for Thanksgiving. Main focus euro crisis and German Ifo.
The failed German Bund auction yesterday took the euro crisis to its absolute core and increased worries over the crisis getting out of control. While some were referring to technical factors behind the failure it came at a critical time and was broadly viewed as an intensification of the crisis – see WSJ. Italian yields rose again very close to 7% and both Spain and France saw renewed increases in bond yields.
According to Bild Germany is concerned it may have to accept euro bonds. The failed Bund auction puts pressure on Germany to accept euro bonds and other euro member states are likely to intensify the pressure on Germany now.
As the euro crisis escalates there are signs of contagion to the rest of the world. CDS on US banks are climbing higher on concern of exposure to eurozone debt. The CDS on Bank of America rose to a new high of 495 compared with a previous high of 465 in October.
The intensification of the euro crisis sent stock markets into further decline as well. S&P500 closed down more than 2%. Slightly softer US data for durable goods orders and personal spending also weighed on the market.
Asian stock markets rebounded somewhat overnight, apart from Nikkei that was closed on Wednesday and is now catching up with yesterday’s declines. Markets got a small lift from a cut in the reserve ratio for six rural banks in China, which is seen as a sign that more easing could be in the pipeline in China as growth worries increase and the inflation concern is decreasing.
US 10-year bond yields fell further by 5bp overnight to 1.88% before closing for Thanksgiving today. Falling risk appetite and a strong 7-year auction supported the treasury market.
In FX markets EUR/USD came under pressure yesterday and fell below 1.34. USD/JPY moved lower overnight while Scandi currencies are broadly unchanged.
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Global Daily
Focus today: On the data front we have a couple of relevant releases in Europe today. We expect the German Ifo to deteriorate further in line with German manufactory PMIs released yesterday. German factory orders have decreased sharply recently and also industrial production has started to decrease. In the UK Q3 GDP growth data will be released. We expect a reading of 0.5% q/q in line with consensus and unchanged compared to Q2. Also details of the decent Q3 German GDP growth of 0.5% will be released. In the US markets are closed due to Thanksgiving.
Fixed income markets: Yesterday Germany failed to get bids for 35% of the 10-year bonds offered for sale. Some interpreted the disastrous outcome as a sign that the eurozone crisis is driving investors away from the region. We still see strong demand for German bonds but yesterday’s result indicates that there is a limit for everything. Today Sweden will issue Linkers in the June 22 maturity. This issuance will most likely be better received in markets.
FX markets: The strong support-level at 1.34 in EUR/USD was not able to hold yesterday afternoon. The combination of low eurozone PMI-numbers and not least the weak German bond auction weighed on the euro. The rising German yields might be the first indication that investors are no longer just moving their money into Germany away from the debt-troubled countries, but actually out of the eurozone. If that is the case it could spell further trouble for the euro going forward. We are still seeing EUR/USD heading for 1.30 on a 3M horizon. Today the direction for EUR/USD will be set by the German Ifo and of course the development in Italian and Spanish yields.
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Scandi Daily
Denmark: The weak German government bond auction yesterday spurred further interest in Scandinavian bonds and we saw a strong performance relative to Germany for the non-euro countries Denmark, Norway and Sweden. The move into Scandinavian papers was also visible in the FX market, especially the significant move lower in EUR/DKK to 7.435. EUR/DKK is now well below the 7.441-level that triggered intervention and the subsequent rate cut by the Danish central bank, Nationalbanken, in the beginning of November. Even though Nationalbanken might be ready to accept a slightly stronger DKK, the move yesterday was very significant and a new independent Danish rate cut of 10bp seems imminent. Hence, an independent Danish rate cut today at 16:00 CET seems likely. We look for a cut in the CD rate of 10bp to 0.55% and we might also see a cut in the lending rate of 10bp, which will bring the official rate to 1.10% - 15bp below the ECB refi-rate. However, as always the reaction function of Nationalbanken is very clear. First we should expect intervention in the market and if that is not enough rates will be changed. The strong move lower in EUR/DKK yesterday might indicate that intervention so far has been modest. If that is the case, Nationalbanken might opt for unchanged rates today and postpone an independent move to next week or more likely to 8 December, when rates are most likely going to be changed anyway due to a widely expected ECB cut.