US bond yields fall

The euro traded above $1.05 against the dollar for a time yesterday but was unable to hold onto these gains and is back down at around $1.0480 this morning. Similarly, sterling rose to an intra-day high of just over $1.26 against the US currency but has since fallen back to about $1.25505. This in turns sees EURGBP trading a touch firmer at £0.8350. Meanwhile, president-elect Trump has said that, on his first day in office, he will sign executive orders charging a 25% tariff on all goods coming into the US from Canada and Mexico and a 10% tariff (on top of any additional tariffs) on goods from China, which is weighing a bit on these countries respective currencies.

US government bond yields fell sharply post Trump’s appointment of his new Treasury Secretary, with 10-year yields closing 12bps lower at 4.28% – around their level on the eve of the presidential election – and 2-year yields declining by about 10bps. German and UK 10-year yields saw more modest falls of around 5bps, while 2-year yields were largely flat on the day.

Equity markets made a positive start to the week. The Dow Jones in the US added 1% to close at a new all-time high, while the S&P 500 and Nasdaq chalked up more modest gains (+0.3%). European stocks closed higher for a third session in a row, up around 0.3% on the day.

Fed member Kaskkari says it is “reasonable” to consider a 25bps reduction in interest rates at next month’s monetary policy meeting, while his colleague Goolsbee says it’s “pretty clear” to him that rates are on a path lower to somewhere “close to neutral”, but adds that “how fast that happens will depend on the economic outlook and conditions.”

There’s a smattering of US economic data due today including consumer confidence, new home sales, and house prices. The Fed publishes the minutes of its October meeting, at which it cut interest rates by 25bps, while a number of ECB members are scheduled to speak over the course of the day.