Euro area bond yields pop higher

Notwithstanding a jump in Euro area government bond yields following relatively ‘hawkish’ comments on interest rates by an ECB member, the single currency is largely unchanged from yesterday morning’s levels against the dollar at $1.1650 (though it bounced around quite a bit during the course of the day’s session). Sterling is also more or less unchanged against the US currency at $1.3330, and is holding onto last week’s gains against the euro, trading at around £0.8735 this morning.

Euro area government bond yields rose by 6-8bps as the market priced in a (small) chance of an increase in ECB interest rates in the final quarter of next year following comments by ECB member Schnabel, who said she believes the next move in rates is likely to be up “albeit not anytime soon”. UK and US yields followed Euro area yields some of the way higher, increasing by 3-5bps and 2-3bps respectively. Equity markets had an uneventful start to the week, with European stocks closing marginally higher and the main US indices ending a touch lower.

The latest New York Fed survey of US households’ inflation expectations showed short (1-year ahead) and medium (3-5 years ahead) expectations for inflation both held steady in November at 3.2% and 3% respectively. The survey also showed that households’ perceptions about their current financial situation “deteriorated notably, with a larger share of respondents reporting they were worse off compared to a year ago”,  while “expectations about their year-ahead financial situations also deteriorated slightly”.

Looking to the rest of the day, the main currency pairs may not do an awful lot ahead of the Fed’s interest rate announcement tomorrow. There is some US labour market data to be negotiated with job openings for October scheduled for release later, while the small business optimism survey (for November) is due in the US as well.