EM Market Report London

Volatility eases into festive period

Thanim Islam
Thanim Islam 19 December 2022

- Markets in a sea of calm for Christmas

- Italian-German bond spreads widen

- Yen in demand on potential change in powers

Over the weekend

  • On the data front, S&P preliminary PMIs for Europe and UK surprised to the upside, whilst the US data points surprised to the downside. While we saw both GBP and EUR gain, and USD weaken on the data points, market pricing returned back to where it was before, suggesting markets aren't willing to take a clear direction following a busy week on the data front.

Today

Market rates

* Daily move - against G10 rates at 17:00pm, 18.12.22

** Indicative rates - interbank rates at 17:00pm, 18.12.22

Frame 23-1

Data points

Frame 16-1

Speeches

  • None today.

Our thoughts

Overnight the Japanese yen received a boost after it was reported that PM Fumio Kishida may revise a 10 year old accord to give the Bank of Japan more flexibility around dealing with its inflation goal. GBPJPY continues to drop off its recent highs.

To start the week we are seeing some risk appetite come in, with GBP starting the week strong and USD weak.

With markets grinding to a halt going into Christmas, there doesn’t look to be anything that’s going to break any new ground. Housing data is due to be released from the UK and US, likely to show weakness in the respective countries. We also have 3rd quarter GDP data from the UK and US, and Canada reports its GDP data for October. Canada will also report its inflation data for November, and the Fed's preferred measure of inflation, the core PCE, is also due for release.

Chart of the day

Following the ECB’s hawkish narrative last week, we saw the spread between Italian and German 10-year yields widen on fragmentation risks. We know the ECB has implemented an anti-fragmentation tool earlier this year, but should markets get concerned about the implications of hawkish rate hikes on the periphery nations in Europe, then we could see this tool tested. We shall be monitoring this spread and the implication this could have on EUR.

19122022 cotdSource: Bloomberg Finance L.P.

Have a great day.