Markets
Summer trading conditions kicked in after Wednesday’s US CPI release. Core bonds and main FX cross rates aren’t going anywhere. Higher US PPI and good labor market data (weekly claims) didn’t change that. US Treasuries marginally underperformed German Bunds yesterday after the $27bn 30-yr Bond sale stopped above the 1:00 PM bid side. Demand metrics were average. The auction wrapped up the US Treasury’s mid-month refinancing operation after solid 3-yr Note and stellar 10-yr Note sales. US yields added up to 1.5 bps in a daily perspective with the belly of the curve outperforming the wings. German yields increased by up to 0.5 bps. 10-yr yield spreads vs Germany narrowed by up to 3 bps with Italy outperforming. EUR/USD stabilized just above the key 1.1704/1.1695 support zone. The pair closed at 1.1730. Sterling lost out against the euro after four days straight failing to take out EUR/GBP 0.8470 support triggered some return action higher. The pair currently changes hands around the 0.85 big figure. The overall low volatility market environment remains fertile ground for stocks. European and US indices added up to 0.5% on a daily basis with a new all-time high for the S&P 500.
Asian stock markets trade mixed this morning with China, Taiwan, and South Korea underperforming. Semiconductor stocks (eg Samsung) lead the way lower as the Delta variant makes way through Asia. China decided to close a part of the world’s third-busiest container port (Ningbo-Zhoushan) after an employee tested positive for the coronavirus. Such disruptions will further lengthen supply chains as they did back in May with the temporary closure of the Yantian port. Main FI/FX markets aren’t impacted (yet) by this morning’s more fragile risk environment. Today’s eco calendar is empty apart from August University of Michigan consumer confidence. This implies that more Summer trading scenes could become. Next week’s highlights include US retail sales (Tuesday), minutes of the July FOCM meeting (Wednesday), first indications on Chinese growth at the start of Q3 (Monday), and EMU Q2 GDP numbers (Tuesday). The Reserve Bank of New Zealand (Wednesday; see below) and Norges Bank (Thursday; preparing September hike?) hold policy meetings.
News headlines
An official report from the Irish Maritime Development Office shows the impact of the Brexit deal on freight flows between Great Britain and Ireland. The volume of roll-on roll-off cargo fell by 29% compared to the same period in 2019 as Irish exporters want to circumvent possible customs delay’s at the UK’s border with the EU. Irish shipments to the EU in the first six months of the year nearly doubled.
New Zealand’s manufacturing PMI increased from 60.9 to 62.6 in July, the second-best reading on record and the third 60+ outcome in the past five months. While the key sub-index values of production (66.0) and new orders (65.0) both showed further expansion from June, employment (58.3) recorded its highest ever result over the history of the survey. The increasingly tight labor market was mentioned though by many manufacturers who provided negative comments. Supply chain issues and raw material costs were also outlined as problematic. The red-hot PMI comes ahead of next week’s central bank meeting where the Reserve Bank of New Zealand is set to become one of the first developed countries to hike policy rates (0.5% from 0.25% expected). NZD/USD didn’t react to the PMI, trading stable near 0.70.
