Futures Jump As Vaccine Optimism, Stimulus Hopes Return

Yesterday morning, after the early swoon, we said that as part of a gloriously repeating pattern, the drawdown will promptly reverse and on Tuesday morning things will be back to normal with the vaccine, stimulus narrative regaining the upper ground.

And sure enough, on Tuesday morning risk is solidly higher, with the Emini up 26  points or 0.7%, on absolutely nothing incremental, except for the usual “explanation” such as this from Reuters:

U.S. stock index futures rose on Tuesday as progress toward a massive government spending bill and COVID-19 relief measures kept spirits high, while investors awaited new economic cues from the Federal Reserve’s final meeting of the year.

and Bloomberg:

U.S. stocks are poised to open higher after a four-day slump, the longest stretch since September, with investors taking comfort in the vaccine rollout and progress on stimulus talks.

The result:

And the obligatory “explanation” from finance pros: “The market is focusing on the light at the end of the tunnel,” said Peter Rosenstreich, head of market strategy at Swissquote Bank. “There will be short-term volatility as Covid-19 cases jump in parts of the world and growth data is bumpy, but there’s good news for a longer-term outlook.”

Or maybe this is just the follow up of another observation we made last night: buy the overnight session, sell the day session, and retire as the following chart from Goldman clearly shows:

In individual names, Apple rose more than 1% in premarket trade after a report said it plans to increase iPhone production by 30% in the first half of 2021. Bristol-Myers Squibb climbed after Goldman Sachs Group added the drugmaker to its conviction buy list. In Europe, Volkswagen AG rallied 5% after the German carmaker’s board eased internal corporate tensions by backing CEO Herbert Diess.

Europe’s Stoxx was up 0.1%, trading off best levels in a quiet morning after opening red. The DAX outperformed, with autos, miners and insurance stocks the best performers; retailers and health care lag with little fresh news to drive price action. The pound rose and credit markets strengthened as Brexit negotiatiors pushed to reach a final trade deal. Following a weekend of intense diplomatic activity, Michel Barnier, who leads the EU team, said he can see a pathway to a deal — if the two sides can resolve what he called their significant differences.

Earlier in the session, Asian stocks were set for their worst day this month as energy and materials shares declined. The MSCI Asia Pacific Index was down 0.4%. Tencent and Meituan contributed the most to declines, falling for a second day on anti-monopoly concerns in China. Hong Kong-listed Cnooc was among the biggest decliners on the Asian energy gauge after its parent sent a notice to customers and partners asking them to help ensure sufficient LNG supplies amid a surge in prices. Meanwhile, Yancoal Australia fell 8.4% amid reports that China has formally banned imports of Australian coal while Whitehaven fell 5.9%. Iron ore miners were among the biggest drag on the regional materials gauge after China’s steel association asked authorities to investigate a recent price rally. Japan’s Nikkei 225 fell 0.2%, with travel stocks down on the government’s unexpected halt of a nationwide travel campaign following a surge in virus cases. China’s CSI 300 Index was among the few gainers in Asia on Tuesday, climbing 0.2%, as a spate of economic data releases from China shows its recovery gathered pace last month. The PBOC injected medium-term liquidity into the financial system, more than offsetting the tally due in December. Meanwhile, more than a dozen firms saw shares fall their 5% limit after China issued draft revisions seeking to shorten the delisting process.

Optimism was boosted as talks in Congress were underway late on Monday to agree on a bill to avert a government shutdown, with Democrat and Republican leaders appearing more upbeat about including a fresh round of coronavirus aid. Needless to say, markets have moved in lockstep with news on a relief bill, which is expected to further offset the economic impact of the virus outbreak and keep liquidity high.

And speaking of liquidity, The Fed is expected to maintain interest rates at near-zero during its two-day meeting starting later on Tuesday, and signal it will stay there for years to come. The recent coronavirus vaccine roll-out is also expected to improve the bank’s 2021 outlook.

Meanwhile, the virus continued to rage in the U.S., threatening even harsher restrictions across the nation. New York City Mayor Bill de Blasio warned that people should be prepared for a full shutdown. European governments are also tightening measures.

In FX, the Bloomberg Dollar Spot Index was less than 0.1% lower after paring an advance in early European hours, with most G10 peers trading in narrow ranges against the greenback. The euro edged up, closing in on a day high, while the pound fluctuated between modest losses and gains as Brexit negotiations continued in Brussels. The yen struggled to find direction, holding near the 104 handle against the dollar. The Aussie dollar was little changed after earlier falling in the Asian session on reports that China officially banned Australian coal imports, and as worsening Covid infection rates pushed more economies toward full lockdowns.

In rates, Treasuries held small losses in early U.S. session, underperforming bunds and gilts, as S&P 500 futures advanced. During the Asia session, volumes were muted in the last full trading week of the year, while gilts pared some of Monday’s loss with Brexit developments in focus. Fed’s two Treasury purchase operations Tuesday may provide support. Yields, slightly cheaper across the curve, remain within a basis point of Monday’s closing levels with 10-year at 0.90%, lagging bunds and gilts by 1bp-2bp. On the liquidity front, the Fed – whose POMO schedule skips Wednesday’s FOMC meeting date as well as Dec. 24-28 – plans to buy up to $8.825b of coupons due in 2.25 to 4.5 years at 10:30am ET and up to $3.625b of those due in 7 to 20 years at 11:20am.

In commodities, WTI and Brent trimmed the modest losses seen in APAC in tandem with the steady rise across stocks, but price action has been constrained as the complex juggles vaccine hopes with nearer-term COVID-related restriction measures in Europe, whilst geopolitics and OPEC’s reaction function are also monitored. On that note, the JTC and JMMC meetings have been pushed back to Jan 3rd/4th from Dec 16/17, with the latter also coinciding with the policy-setting meeting where ministers are poised to decide on Feb production levels. In its report, the IEA said that the global crude glut will clear by the end of next year, as markets face a gradual recovery marked by renewed strains on demand. Elsewhere, OPEC shouldn’t rush to increase output, with Covid-19 raging across parts of the world, the group’s president underlined. China set another record for daily crude processing.

Looking at today’s calendar, data releases include US industrial production and capacity utilisation for November, along with December’s Empire State manufacturing survey, while in the UK we’ll get unemployment data for October. From central banks, we’ll hear from the ECB’s Rehn and Bank of Canada Governor Macklem. No major company is reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.6% to 3,668.50
  • STOXX Europe 600 up 0.2% to 392.71
  • MXAP down 0.4% to 193.69
  • MXAPJ down 0.4% to 639.41
  • Nikkei down 0.2% to 26,687.84
  • Topix down 0.5% to 1,782.05
  • Hang Seng Index down 0.7% to 26,207.29
  • Shanghai Composite down 0.06% to 3,367.23
  • Sensex up 0.03% to 46,267.71
  • Australia S&P/ASX 200 down 0.4% to 6,631.34
  • Kospi down 0.2% to 2,756.82
  • Brent futures up 0.1% to $50.35/bbl
  • Gold spot up 1% to $1,845.05
  • U.S. Dollar Index little changed at 90.66
  • German 10Y yield rose 0.2 bps to -0.618%
  • Euro up 0.1% to $1.2158
  • Italian 10Y yield fell 1.7 bps to 0.43%
  • Spanish 10Y yield fell 0.5 bps to -0.002%

Top Overnight News

  • Coronavirus restrictions aren’t letting up in Europe. London will be placed under England’s toughest measures from Wednesday, the same day Germany starts a hard lockdown. Italy’s prime minister said he plans further curbs to slow cases during the festive season, and the Dutch government is imposing stricter rules for five weeks
  • China’s industrial production rose 7% in November from a year earlier, while retail sales expanded 5% in the period. Fixed-asset investment grew 2.6% in the first 11 months of the year from the same period in 2019. The data matched the median estimates in a Bloomberg survey of economists
  • Russian President Vladimir Putin sent Joe Biden a congratulatory telegram after the Electoral College formalized his victory in the Nov. 3 election, making him among the last world leaders to recognize the U.S. president-elect
  • The crude-oil glut left behind by the pandemic will clear by the end of next year, as markets face a gradual recovery marked by renewed strains on demand, the International Energy Agency said
  • U.K. job cuts jumped to the highest on record in the three months through October, raising more questions over Chancellor of the Exchequer Rishi Sunak’s refusal to extend job support programs until hours before they expired
  • The total number of deaths linked to the coronavirus fell for the first time since September in the week ending Dec. 4, according to the Office for National Statistics
  • The Treasury market’s bears may find a dose of vindication this week given that the Federal Reserve may disappoint some traders by not tweaking its bond-buying program, which could finally catapult 10-year yields above 1%, even if only briefly

A quick look at global markets courtesy of NewSquawk

Asian equity markets followed suit to the cautious performance in the US where sentiment was pressured by lockdown concerns after New York City Mayor De Blasio warned of the possibility of a full shutdown for NYC which weighed on the overall market sentiment and saw the S&P 500 and DJIA reverse course with the blue-chip index falling from fresh record intraday highs, although the Nasdaq remained afloat as stay-at-home tech names benefitted, while some analysts noted this week’s looming FOMC, quad witching and portfolio rebalancing heading into the holiday season were also headwinds for stocks. ASX 200 (-0.4%) and Nikkei 225 (-0.2%) declined with Australia dragged by underperformance in mining names and losses in the largest weighted financials sector despite the industry regulator announcing it will no longer hold banks to a minimum level of earnings retention from 2021, while the Japanese benchmark also languished with ANA Holdings the worst hit on news that Japan is to suspend the Go To Travel subsidy campaign. Hang Seng (-0.7%) and Shanghai Comp. (-0.1%) were subdued with a substantial CNY 950bln 1-year MLF operation by the PBoC failing to spur risk appetite and as participants digested the latest activity data in which Industrial Production printed in line with estimates at 7.0% but Retail Sales missed at 5.0% vs exp. 5.2% although was still an increase in pace from the prior month’s growth of 4.3%. Finally, 10yr JGBs were flat above the 152.00 level with only minimal gains seen despite the cautious risk tone in stocks and slightly better demand at the enhanced liquidity auction for 10yr, 20yr & 30yr JGBs.

Top Asian News

  • China Offers $145 Billion in Bank Funding as Liquidity Tightens
  • BNP Paribas Bullish on India Stocks, Sees Sensex Crossing 50,000
  • Chinese Oil Refiners Set Another Record for Daily Processing
  • Azerbaijan, Armenia Exchange War Prisoners With Russian Help

Stocks across Europe have diverged following the uninspiring cash open, with the major EZ-bourses extending gains (Euro Stoxx 50 +0.5%) whilst the periphery and Switzerland see a more subdued session thus far (IBEX -0.4%, FTSE MIB +0.2%, SMI -0.2%). News flow during the European morning has been light, but several risk events are looming including the FOMC policy announcement, quad-witching and month/quarter/year-end re-balancing. Losses in the IBEX are driven by heavyweight Inditex (-2.3%) post-earnings as sales slumped amid the pandemic, whilst gains in the FTSE MIB are hampered by Italy’s re-imposition of lockdown measure throughout the holiday period. Sectors in Europe are mostly in the green with a pro-cyclical bias. Healthcare stands as the marked underperformer and subsequently weighs on the pharma-heavy SMI. In terms of individual movers, Volkswagen (+4.9%) resides as one of the top gainers after the supervisory board soothed tensions by backing the CEO, whilst separately, the CEO said the group is to further advance e-mobility, digital and battery technology whilst cutting overhead and material costs substantially across all brands and regions. Elsewhere, chip names in Europe failed to garner much traction from reports that Apple (+0.5% pre-mkt) is reportedly planning a 30% Y/Y increase in iPhone output for H1 next year to 96mln units. Apple is also said to be preparing an aggressive 2021 production schedule for its high-end computers, including the MacBook Pro and iMac Pro, sources added. Looking ahead to next year, analysts at Standard Chartered have highlighted eight “non-zero probability” underpriced risks to be aware of: 1) Democrats win Georgia’s seats to take the Senate, 2) US and China find common ground, 3) Monetary and fiscal stimulus drives strongest recovery in a century, 4) OPEC abandons supply quotas, 5) European fiscal stimulus hopes dashed, 6) US Treasury Secretary abandons strong USD policy, 7) Emerging-market debt defaults and sovereign downgrades and 8) US President Biden steps down.

Top European News

  • London Landlord Hit by West-End Slump as Next Shutdown Looms
  • Solutions 30 Plunges After Hiring Auditor to Review Allegations
  • Volkswagen Soars After Backing CEO, Defusing Labor Conflict
  • H&M, Inditex Sales Go Into Reverse as Europe Locks Down Again

In FX, it’s tight at the bottom of the G10 table, but aside from some wavering in general risk sentiment Aussie ‘underperformance’ looks partly related to weakness in commodities and on confirmation from China that coal has joined the list of embargoed imported goods, prompting a curt response from PM Morrison about the ruling breaching WTO rules. For the record, RBA minutes hardly impacted as they reaffirmed dovish-leaning guidance to leave Aud/Usd meandering between 0.7546-08 parameters awaiting flash PMIs for further direction. Similarly, the Pound gleaned no traction from better than anticipated UK labour and earnings data as Brexit remains in the balance, with Cable retreating further from yesterday’s peak to test 1.3300 and stops through Sunday’s 1.3290 Asian 1.3290 trough, while Eur/Gbp tests 0.9150 to the upside amidst potential RHS fixing interest. Elsewhere, the Kiwi has also retrenched having topped out above 0.7100 and is hovering within a 0.7091-60 range ahead of NZ current account metrics tonight and GDP on Wednesday following another warning from the RBNZ about the highly uncertain economic outlook as the risks to health and growth remain skewed to the downside.

  • DXY – The Dollar and index by default, if not quite design, have maintained recovery momentum, as the latter holds above 90.500 and Monday’s new y-t-d/multi-year low (90.419), albeit still unable to reach 91.000 and fading just below yesterday’s high, at 90.824 vs 90.907. Markets are somewhat caught and indecisive on the upbeat vaccine developments fostering optimism that the worst of the coronavirus and contagion may be over, but cautious about the fall-out from latest lockdowns and restrictions that are being tightened in some places due to new strains of COVID-19. Moreover, this week’s major risk events lie ahead and will vie with early positioning for month, quarter and year end, while stocks also have quad-witching to contend with.
  • EUR/CAD/CHF/JPY – All narrowly mixed vs the Greenback with the Euro holding around 1.2150 and bound by decent option expiry interest at 1.2100 and 1.2175 (1 bn at each strike) after forming an effective double top at the current 2020 apex, while the Loonie is pivoting 1.2750 in the run up to Canadian housing starts, manufacturing sales and a speech from BoC Governor Macklem. Back to Europe, little reaction to mixed Swiss producer import prices or SECO forecasts pending Thursday’s SNB policy review, though the Franc continues to trade on the front foot above 0.8900 and 1.0800 against the Euro in contrast to the Yen that is losing 104.00+ status before the spotlight falls on Japanese trade data, but not to the extent that 1 bn option expiries between 104.50-55 appear likely to be triggered.
  • SCANDI/EM – The Nok does not look overly ruffled by waning crude prices or a narrower Norwegian trade surplus as it broadly keeps pace with the Eur and Sek near 10.6300 and 1.0400 respectively, but the Try has taken US sanctions vs Turkey largely in stride in wake of a marked improvement in the budget balance and the Cnh has absorbed a raft of Chinese data that straddled consensus with the aid of a hefty PBoC 1 year MLF injection (Cny 950 bn). Usd/Try is eyeing 7.8200 and Usd/Cnh 6.5300.
  • RBA Minutes from December meeting reiterated that the board is prepared to do more if required and policy is focused on bond buying, while it will review the size of program and its impact to the economy in future meetings. RBA also reaffirmed that it does not expect to raise the cash rate for at least 3 years and will not raise rates until inflation sustainably within 2%-3% target band. Furthermore, it stated that stated that substantial support will be needed for a considerable period and it is prepared to buy bonds in whatever amount needed to maintain 3yr yield target. (Newswires)

In commodities, WTI and Brent front-month futures have trimmed the modest losses seen in APAC in tandem with the steady rise across stocks, but price action has been constrained as the complex juggles vaccine hopes with nearer-term COVID-related restriction measures in Europe, whilst geopolitics and OPEC’s reaction function are also monitored. On that note, the JTC and JMMC meetings have been pushed back to Jan 3rd/4th from Dec 16/17, with the latter also coinciding with the policy-setting meeting where ministers are poised to decide on Feb production levels. Elsewhere, the morning also saw the findings of the latest IEA oil market report whereby the agency cut its 2020 and 2021 global oil demand forecasts (in-fitting with the EIA STEO and OPEC MOMR) by 50k BPD and 170k BPD respectively citing poor aviation demand alongside a slip in European demand due to the re-imposition of lockdown measures. The report also stated it will be several month before vaccines make an impact on global oil demand – hardly surprising given a bulk of the vaccine rollouts are to take place next year. Price action amid the report was minimal but the benchmarks did wane off best levels, with WTI Jan 21 trading on either side of USD 47/bbl (46.54-47.19/bbl range), whilst Brent Feb 21 resides just north of USD 50/bbl (49.78-50.47/bbl range). Elsewhere, precious metals have continued the positive momentum seen during APAC hours ahead of a number of key risk events including FOMC and month/quarter/year-end re-balancing – with spot gold eyeing 1850/oz to the upside (vs. low 1825.66/oz) but encountering mild resistance just before, whilst spot silver extends gains above USD 24/oz (vs. low 23.82/oz). Meanwhile, LME copper fails to coattail on the gains across stocks – with upside also capped as wage talks in Chile’s Centinela mine have been extended in a bid to avert imminent strike action.

US Event Calendar

  • 8:30am: Empire Manufacturing, est. 6.2, prior 6.3;
  • 8:30am: Import Price Index MoM, est. 0.3%, prior -0.1%; YoY, est. -0.85%, prior -1.0%
  • 8:30am: Export Price Index MoM, est. 0.2%, prior 0.2%; YoY, prior -1.6%
  • 9:15am: Industrial Production MoM, est. 0.3%, prior 1.1%; Capacity Utilization, est. 73.0%, prior 72.8%; Manufacturing (SIC) Production, est. 0.3%, prior 1.0%
  • 4pm: Net Long-term TIC Flows, prior $108.9b; Total Net TIC Flows, prior $79.9b deficit

DB’s Jim Reid concludes the overnight wrap

It’s fair to say that the near term news is pretty mixed at the moment with restrictions mounting again across much of the world even as US stimulus talks and Brexit look slightly more positive than where we left markets on Friday. These forces fought it out all day yesterday but in the end negativity won out as the S&P dipped from being +0.93% in early trading to close down -0.44%, as 19 of the 24 index’s industry groups were down on the day. The losses were led by Energy (-3.53%), Transportation (-1.91%) and Banks (-1.28%) as the cyclical-over-growth trade took a big hit following a bevy of headlines on further or longer restrictions in Europe and the US. Meanwhile the NASDAQ was up +0.50% in spite of a Bloomberg report which said that tech firms could face fines of up to 10% of their annual revenue under new EU rules on data usage. The NYFANG index was actually up an even greater +1.08%. Biotech stocks were a big winner, up +2.33% on the day, following the Pfizer vaccine rollout in the US and headlines of AstraZeneca buying rare-disease specialist Alexion Pharmaceuticals. Earlier the Stoxx 600 closed up +0.44% but missed the late US sell-off. Core sovereign bonds similarly diverged on both sides of the Atlantic, 10yr US Treasuries were down slightly (-0.3bps) as 10yr bund yields rose +1.6bps. Elsewhere the dollar index hit its lowest intraday level in over 2 years, down -0.29% to 90.7.

After the New York bell, a bipartisan group of Senators unveiled new details on the proposed $908 billion pandemic-relief package. The idea is to break it into two bills. The first outlined a $748 billion plan including key consensus points like $300 billion of small business aid, $300-per-week of “enhanced” unemployment benefits and funds for vaccine distribution. The second includes the two contentious topics, namely $160 billion in state-and-local aid that Democrats have fought for and liability provisions that Republicans are seeking. The number two Democrat in the Senate, Durbin, said that while the latter bill is “critically” important, he stressed that the former, consensus bill ought to be voted on prior to Christmas as the relief is “desperately needed”. This is a move for Democrats, who have long said any stimulus deal needed to include a degree of state-and-local aid. Senior Republican Senator Cornyn added, ”I would be shocked if we didn’t see something pretty concrete by at least Wednesday because we’ve got to vote on this thing by Friday and get out of here.”

The stimulus headlines haven’t impacted markets too much so far as Asian markets are following the US lower this morning with the Nikkei (-0.38%), Hang Seng (-0.91%), Shanghai Comp (-0.45%), Kospi (-0.79%) and Asx (-0.43%) all down. Meanwhile, futures on the S&P 500 are broadly flat (+0.04%) as we type but its European counterparts are pointing to a weaker open.

Overnight we have seen China’s November economic data where all the indicators like retail sales (at 5% yoy), industrial output (+7% yoy) and YtD fixed asset investment (+2.6% yoy) printed in line with expectations. China’s November surveyed jobless rate also printed in line with consensus at 5.2% (vs. 5.3% last month). Fu Linghui, a spokesman for the National Bureau of Statistics, said alongside the data that 4Q growth is likely to be better than any of the previous three quarters. Meanwhile, the PBOC has injected CNY 950bn of 1yr cash via the medium term lending facility today, more than offsetting the CNY 600bn that matures this month.

Going through some of the main stories of the last 24 hours in a little more detail now and starting with Covid, yesterday marked an important milestone in the US as the first members of the public began to get the Pfizer/BioNTech vaccine following its approval. However, the broader theme across the world was how the authorities were having to tighten restrictions further given the rising caseload ahead of Christmas. In New York City, Mayor de Blasio said that people should prepare for a full shutdown, while it was announced that London would face tougher Tier 3 restrictions from tomorrow, which will include the closure of hospitality such as pubs and restaurants, except for takeaway. Over in the Netherlands, the PM Rutte announced a five-week lockdown from yesterday onwards that will close non-essential stores, gym, museums, and schools will be online from Wednesday. The Dutch government is also asking residents to see a max of two guests over the age of 13 per day, with the rule relaxing slightly for Christmas Eve through Boxing Day. In Italy, Corriere della Sera reported that the government were also considering fresh measures, including the closure of bars and restaurants. This follows on from the imminent hard German lockdown announced over the weekend. Some measures in France are set to end today, including written justification for trips outside one’s home. Instead, an 8pm curfew is being instituted, with an exception for Christmas Eve. Across the other side of world, Japan has suspended its nationwide travel campaign to check the spread of virus.

Though it didn’t dominate the headlines yesterday, there was a rather concerning announcement from UK Health Secretary Hancock, who said that a new variant of the coronavirus had been identified which may be associated with its rapid spread in southern England recently, with over 1,000 cases of this variant identified. Though he said it didn’t appear more likely to cause serious disease, and said it was highly unlikely it wouldn’t respond to a vaccine, concerns over a possible virus mutation very much ties in with what our EMR survey respondents saw as the biggest risk for 2021, which was that the virus could mutate and dodge a vaccine. For the full list of the rest, you can see the survey results here.

Onto Brexit, sterling had a strong performance yesterday as markets reacted positively to the fact that the negotiations are continuing past the previous Sunday deadline. This has been taken as a major positive, since both sides still appear keen to avoid a no-deal outcome, and the fact that no further deadline was set removes the prospect of another crunch point in the coming days. Indeed reports suggested there could even be a breakthrough this week, saying that the EU’s chief negotiator Michel Barnier told ambassadors that a deal could be agreed if a compromise were reached over fisheries.

By the close, sterling was up +0.76% against the US Dollar, and our analysts think it could go even higher if there were a deal, with DB’s Shreyas Gopal writing in his Brexit update yesterday (link here) that we continue to see a move to around 1.36 in Cable upon completion of a deal, up from the $1.3343 it’s currently trading at.

Staying on politics, yesterday saw the US Electoral College formally vote for Joe Biden as President. There were no “faithless electors”, or those that ignore the popular vote of their state’s citizens. This codified Mr Biden as President-elect with a vote of 306 to 232. President Trump indicated on Sunday that he was going to continue disputing the outcome of the election, even after the Supreme Court rejected a case from Texas which sought to nullify the results in four of the six closest battleground states. Now the next step will be for Congress to tally the electoral college votes in a joint session on January 6th with Vice President Mike Pence presiding. While some Republican House-members have indicated they will object to the count, enough Senate Republicans have recognised Joe Biden as the President-elect for it not to matter. The second-ranking Republican in the Senate, John Thune of South Dakota said, “it’s time to move on.” Senators Grassley, Ernst, Portman and Capito all acknowledged that Biden would indeed be the next president as well, with the notable exception remaining Senate Majority Leader McConnell. President-elect Biden addressed the nation late last night, urging Americans “to turn the page” and focus efforts on the pandemic and the economic recovery.

Back on Europe, yesterday saw some fresh records set in sovereign bond markets, with yields on 10yr Italian BTPs falling to yet another all-time low of 0.54%, while those on 30yr yields similarly fell to a record low of 1.41%. Core sovereign bonds had a weaker performance however, with yields on 10yr bunds (+1.7bps), OATs (+1.0bps) and gilts (+5.0bps) all moving higher. Gilts in fact underperformed other European sovereigns thanks to the positive Brexit newsflow, as the lower chance of a no-deal outcome has seen gilts lose ground on the back of investors in turn lowering the odds of extra monetary stimulus over the coming months.

Finally, there wasn’t a great deal of data to note, but we did get the Euro Area’s industrial production for October, which rose by +2.1% month-on-month. That brought the year-on-year decline down to -3.8%, which is the smallest annual contraction since the pandemic began.

To the day ahead now, data releases include US industrial production and capacity utilisation for November, along with December’s Empire State manufacturing survey, while in the UK we’ll get unemployment data for October. From central banks, we’ll hear from the ECB’s Rehn and Bank of Canada Governor Macklem.