Core bond yields reversed much of their increase from the previous day on Friday, illustrating bonds continue to find support in the current market environment. The German 10-year yield backed by 2.5bp, while the corresponding US yield tumbled by 4.5bp. Intra-Euro-area spreads widened in the semi-core and Italy, but narrowed for Spain, Portugal and Greece.
The German 10-year yield is showing some signs of establishing support around the record-lows of 56bp, but the demand for bonds continues to be strong, and new lows are still likely ahead before the year is over. Yields are set to creep lower today.
In FX markets, the EUR/USD has resumed its slide, and hit fresh 2-year lows this morning at just above 1.22.
Equities recorded gains on Friday. In Europe, the Stoxx 600 rose by 0.37%, while S&P 500 advanced by 0.46%. In the US, equities have almost recouped all of their December falls in just three days, implying the momentum has improved again. The key test is whether the S&P 500 can rise to new record highs in the coming days. Asian markets are trading mostly higher as well this morning, while Europe is set to open slightly higher.
Early Greek elections approaching
Following claims of vote buying in the context of the Greek presidential elections, Prime Minister Samaras yesterday offered the formation of an expanded government of pro-European parties and early elections by the end of 2015, if the Greek parliament came together to elect the president.
Yesterday’s promises are unlikely to gather sufficient support for the government’s candidate, but imply the government is becoming increasingly worried about the situation. Alternative solutions still look possible, if e.g. the Prime Minister is willing to offer to give up power as part of setting up a broader government. In any case, early parliamentary elections appear to be ahead in 2015.
The second round of voting in the presidential election will take place tomorrow, but the more interesting vote will be ahead on 29 December. Market worries could easily pick up again, as that date approaches.
Too early to call the bottom for oil prices
Oil prices are again showing signs of establishing some support, this time around the USD 60 level. The Brent front contract has actually rebounded to around USD 62 this morning. Similar signs were seen at around USD 70, USD 80 and USD 85, but prices quickly started falling again. Also this time the momentum still continues to favour a further fall in prices, and the news flow supports lower prices as well. The Energy Minister of the United Arab Emirates has called for non-OPEC producers to cut production, which sounds a bit desperate, while the Saudi Oil Minister confirmed Saudi Arabia was not going to cut production.
Holiday-shortened week ahead
It should be no surprise that the Christmas week calendar is rather light, but it is not empty. US data offerings include November existing home sales today at 16:00 CET, while US November durable goods orders, revised Q3 GDP numbers, November new home sales and the personal spending report for the same month will all be released tomorrow.
Today’s calendar also includes the December flash Euro-area consumer confidence at 16:00 CET.
Most of the light activity should concentrate on the first two days of the week.
US auctions still on the agenda
The issuance front is not totally dead either, even though no EUR government bond auctions will be in store. The US will sell USD 27bn of 2-year notes today, USD 13bn of 2-year floating-rate notes and USD 35bn of 5-year notes tomorrow and USD 29bn of 7-year notes on Wednesday.
Nordea