The rising US dollar and the improved sovereign yields continue to make global headlines.
It almost feels like the US election has offered the missing piece of the global macro puzzle. Though politically contested, we can’t deny that the Trump win gave a jolt to the global markets. The sovereign yields could take a breather, and while scaling higher, have brought along the inflationary hopes that have been long-lost in the key developed markets.
Hence, the normalisation in global yields, if the current trend lingers, will take some decent pressure off the central banks’ shoulders and give them a hand to achieve their primary mandate goal: inflation.
The Japanese 10-year yields stepped above 0% for the first time since September 21st, as the USDJPY advanced to 108.55. The Nikkei traded to 17’727 in Tokyo; fears of the US trade protectionism is clearly being counter-weighted by a cheaper yen.
The risk-on environment pushed European equities higher, although Germany’s DAX diverged negatively in the morning session as German growth slowed more than expected in the third-quarter (+0.2% q/q versus 0.3% expected & 0.4% previously).
FTSE 100 stocks advanced past 6800p, as utilities (+3.00%), technology (+1.64%) and energy (+1.50%) stocks lead gains.
The UK’s headline inflation eased to 0.1% in October versus 0.3% expected, the year-on-year inflation unexpectedly fell to 0.9%. The core inflation slowed to 1.2% y/y from 1.5% a month earlier.
The limper inflation print hinted at a slowdown in the UK’s inflationary pressures. Also, the recent recovery in the pound should further ease fears regarding a rapid escalation in consumer prices to the extent it could interfere with the Bank of England’s loose monetary policy.
The GBPUSD sold off to 1.2414 following the unexpectedly soft inflation data. Cable is set for a deeper correction to 1.2350 for a head-and-shoulders formation following last Friday’s peak at 1.2673. The daily MACD has flattened, which should prevent GBP-longs from picking up enough momentum for a renewed attempt to 1.2840 (100-day moving average).