German yields edged slightly down yesterday (10-year yield by 1bp) in rather quiet trading, as volumes were limited by the US Veterans Day holiday. Intra-Euro-area spreads narrowed some, except in Greece.
Trading volumes should pick up a bit today, and core yields have some more room to fall from current levels.
European equities advanced (Stoxx 600 up by 0.36%), while S&P 500 continued to hit new highs, though the daily gain ended up being only 0.07%. Asian equities are trading mostly higher this morning, while Europe is set to open roughly flat.
Japanese equities hit 6-year highs on hopes sales tax hike will be delayed
Japanese equities received a big boost from the new stimulus measures announced by the Bank of Japan late last month, and prices hit fresh 6-year highs earlier today (TOPIX), though the gains moderated during the morning. Prices were boosted further by speculation that Prime Minister Abe would postpone the second planned rise in the consumption tax due in October, and call early elections for December instead. No final decisions on the matter have been taken so far.
The outlook for Japan remains very challenging, and the Bank of Japan cannot lift the economy alone. Postponing the sales tax increase is not a productive solution, unless Mr Abe seriously boosts the third arrow of his programme, i.e. the structural reforms. A fresh mandate could help build his determination on the matter, but so far the progress has been clearly disappointing.
BoE inflation report and Draghi’s speech ahead
The Bank of England will need to reveal downward revisions to its inflation forecasts at its inflation report today at 11:30 CET. The inflation forecast is thus set to suggest the BoE is not in any hurry to start to raise rates.
In central bank speeches, the Fed’s Plosser will speak at 9:00 CET, the ECB’s Visco at 9:30 CET, BoE’s Carney at 11:30 CET, the ECB’s Draghi at 15:00 CET (a video message), and the Fed’s Kocherlakota at 19:30 CET.
In addition, the UK September employment numbers will be out at 10:30 CET and Euro-area industrial production for the same month at 11:00 CET.
New German 2-year benchmark and more
German issuance will continue today, as the country will launch a new 2-year benchmark for EUR 2bn. Portugal, in turn, will re-open its 2024 bond for EUR 0.75 to 1bn. In addition, the EFSF is set to tap its June 2024 bond for EUR 1.5bn.
US auctions, in turn, will continue with USD 24bn 10-year note auction.
Nordea