Bonds: Gilts snap back at end of volatile week
These were the movements in some of the most widely-followed 10-year sovereign bond yields:
US: 2.38% (-7bp)
UK: 1.38% (-12bp)
Germany: 0.28% (-9bp)
France: 0.72% (-10bp)
Italy: 1.90% (-15bp)
Spain: 1.54% (-7bp)
Japan: 0.04% (+1bp)
Portugal: 3.70% (+7bp)
Greece: 6.49% (-1bp)
Investors appeared to take profits towards the end of a volatile week of trading that saw the US President-elect´s nominee for Treasury Secretary, Steve Mnuchin, tell CNBC he believed the American economy could grow sustainably at rates of between 3% to 4%, which was considerably more than estimated by several of Wall Street´s top invesment banks.
Nonetheless, heading into the weekend the focus in markets was on the results of the Austrian presidential elections and the constitutional referendum in Italy.
The latter was expected to lead to a small degree of volatility in Italian stocks, in particular, possibly extending for several weeks, as it became clearer to what extent, or not, it was a permanent setback for reform efforts in the country. In turn, that wwas expected to depend to what degree, or not, the Prime Minister´s reform proposals were rejected.
Against that backdrop, longer-dated Gilts outperformed on Friday.
To take note of, in a speech at Redcar Bank of England chief economist Andy Haldane said Bank Rate was now as likely to rise as too fall, given the resilience shown by the economy after Brexit.
Nonetheless, he cautioned against the temptation of hasty rate increases.
"If the economy weakens and more stimulus is required, there is a risk that the so-called zero lower bound on interest rates may constrain room for maneuver, Haldane said. BOE staff have conducted simulations to assess the probability of this in the future and put it in the range of 15-40 percent," he explained.
Lastly, figures published in the US on Friday revealed that non-farm payrolls grew by 178,000 in November, more than the 142,000 jobs created in the previous month and just slightly below the 180,000 consensus forecast.
In parallel, the unemployment rate fell to 4.6% from 4.9% in October, which was the lowest level since 2007, but in part because the labour force participation rate slipped to 62.7% from 62.8%.
Hourly earnings were down 0.1% month-on-month, weaker than 0.2% rise expected, lowering the year-on-year rate of increase from 2.8% to 2.5% (consensus: 2.8%).
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: “On the face of it, the combination of falling unemployment and sluggish-looking wage numbers appears to support the idea that perhaps the Fed can allow the economy to run hotter for longer without taking undue inflation risks. But we are very skeptical.”
He added: “The bottom line here is that these data don't change the outlook for the December Fed committee; rates will rise. But if unemployment really is at 4.6%, the next question is just how far wage growth will accelerate next year, and how much more the Fed will have to do in order to cap it.”