Markets
European bonds sold off in a Friday session stripped of US investors (Juneteenth). German bunds immediately opened weaker, responding at a $3 price rise in oil that happened after European closing hours the day before. While front end yields afterwards more or less traded sideways, the long end extended declines throughout the day. (Inflation) risk premia may have been the culprit here. US-Iran negotiations already hit a snag less than a day after the MoU signing over continued fighting between Israel and Lebanon-based Hezbollah. German rates eventually added between 3.9 and 7 bps in bear steepening. UK gilts underperformed, printing yield increases varying between 6.9 and 8.5 bps. Apart from oil, dire UK budget data drove the move. They underscored the challenging budgetary setting that the soon-to-be prime minister Burnham is to inherit from Starmer. The latter’s inner circle are expecting he’ll set out a timetable for his departure from office, potentially as soon as today, after Burnham won the Manchester by-election and secured his seat in parliament. Sterling keeps its cool for now. EUR/GBP finished lower on Friday around 0.8667. The couple gapped higher this morning with expectations for Starmer’s imminent exit building but erased gains soon enough. It currently changes hands around 0.867. Political and budgetary uncertainty could nevertheless keep UK assets under pressure. EUR/USD rebounded from intraday lows of 1.1418 to around 1.146 going into the weekend. The technical picture looks weak still. The jury remains out since it’s still early trading, but it is telling that the pair posts a small drop despite the relatively constructive Asian risk settings and a declining oil price. Brent oil eases to $78.8 this morning after opening to a high of $82.3. US-Iran negotiations produce the expected conflicting headlines but have, according to the Iranian foreign minister, Pakistani and Qatari mediators delivered progress, amongst others with respect to the fighting in Lebanon. The back-and-forth news flow is here to stay and in a sense does not differ that much from the situation before the MoU. The US dollar maintains the upper hand against JPY too. USD/JPY headed into the weekend little changed at 161.3 but is advancing in Asian dealings this morning towards 161.7. We’ll be looking for FX intervention(s) (threats) with the pair since Thursday having pierced through the psychologically important 160 barrier. The US returns from an extended weekend today. US Treasuries in a catch-up move lose some ground, pushing yields between 1.7 and 4.5 bps higher. The eco calendar is all but empty today, setting the stage for some technically inspired trading. June PMIs on Tuesday and US May PCE inflation (Thursday) are among the key input to watch later this week. The latter could add fuel to lingering Fed hiking bets after the FOMC meeting of last week. A first one is fully discounted by September. ECB’s Lagarde is scheduled for a double appearance today. Fed’s Waller discusses the international role of the USD. In a broader perspective, the limited number of Fed appearances is noticeable and perhaps already the result of the new “less is more” Fed regime.
News & Views
Irish PM Martin said in an interview with the FT that he believes that an agreement on the EU’s savings and investment union can be reached by year-end. Ireland takes control of the EU’s rotating presidency for H2 2026 and hopes to play a role in achieving this. The EU’s six biggest economies already created an informal group to fast-track capital markets integration. A proposal to centralize supervision of key financial entities is the centerpiece of the savings and investment union. The other pillars focus on increasing retail participation in capital markets, improving firms’ access to capital and overcoming fragmentation.
Czech deputy governor Zamrazilova called last week’s rate hike a “forward looking reaction” aimed to minimize any potential second-round effects. Risks include rapid wage growth, particularly in the service sector, rising rents, and the increase in consumer loans in recent months. She added that “at the moment, we don’t see it as the start of a new cycle of monetary policy tightening”. The CNB doesn’t precommit and leaves all options open depending on incoming economic data.
. German bunds immediately opened weaker, responding at a $3 price rise in oil that happened after European closing hours the day before. While front end yields afterwards more or less traded sideways, the long end extended declines throughout the day. (Inflation) risk premia may have been the culprit here.){kind=link}