Markets:
Core bond trading was rather uneventful today. Both the German Bund and the US Note future suffered minor losses during Asian trading hours as the US/North Korean Summit resulted in a commitment for a full denuclearization. There was no real follow-up action in European/US trading hours though. Investors ignored a disappointing German ZEW, with the forward looking expectations component at a 5-yr low. US Treasuries marginally started underperforming German Bunds following the May US CPI prints. The core and headline readings printed bang in line with forecasts, but accelerated further away from the Fed’s 2% inflation target adding to pressure for the Fed to step up its tightening cycle. NFIB small business sentiment increased earlier in the session to the highest level since 1983! The Atlanta Fed US Q2 GDP nowcast currently expected 4.6% Q/Qa GDP growth! Overall, market moves remained limited ahead of tomorrow’s Fed meeting and Thursday’s ECB meeting. US yields rise by 2.2 to 2.9 bps across the curve. The German yield curve bear flattens with yields 2.1 bps (2-yr) to 1.1 bp (30-yr) higher. 10-yr yield spread changes vs Germany narrow by 3 to 5 bps with Greece (flat) underperforming.
USD: EUR/USD extended an intraday comeback at the start of European trading after a brief dollar rebound early in Asia. There was extensive analysis on the potential consequences of the meeting between US President Trump and North Korean leader Kim Jong Un. Global markets kept a guarded positive bias, but there was no clear directional trend in the major FX cross rates. German ZEW investor confidence declined more than expected (due to Italy and uncertainty on trade). The impact on the euro was limited, but it helped to block any further intraday gains. EUR/USD settled in the high 1.17 area going into the US CPI report. US CPI inflation printed at 2.8% Y/Y for the headline measure and 2.2% for the core figure. The report confirms the trend of a gradual rise in US inflation, but the reaction was close to non-existent. EUR/USD is still going nowhere in a tight range close to 1.18. USD/JPY is holding north of 110, but also for this USD cross rate there is no strong enough trigger for further sustained gains. The countdown to the Fed continues.
GBP: There were plenty of headlines on UK economics and politics today, but they were also unable to provide a clear direction for trading. EUR/GBP continued hovering near the 0.88 pivot. The UK labour data were not too bad as job growth rose more than expected and jobless claims declined. However, wage growth remained modest (2.8% Y/Y ex bonuses vs 2.9% expected). The report was too close to expectations to inspire any directional reaction of sterling. The market focus afterwards turned to the Parliamentary vote on the amendments on the Brexit withdrawal bill. The debate starts at 4pm CET. Earlier today, pro-remain Minister Lee resigned as he intends to support the amendment to give more power to Parliament in the Brexit process (meaningful vote amendment). The impact on sterling remained limited with the outcome of the process highly uncertain. EUR/GBP trades currently marginally higher around 0.8820/25. Cable is little changed near 1.3370.
News Headlines:
Russia has abandoned the OPEC/non-OPEC supply cut deal from January 2017 by exceeding production limits in the first week of June. CEO of Russian energy firm Gazprom said it wants to keep the deal in place but quotas should be revised upwards. Expected is that Saudi Arabia will follow this behavior, pushing oil prices down. There is a desire to add some barrels to prevent prices from overheating and thereby satisfying the US.
The Czech central bank is to tighten mortgage rules to prevent banks running excessive risks in their property lending portfolios. Fuelled by a booming economy, record low unemployment and very low interest rates, real estate prices in the Czech Republic surged 16% last year (fastest-growing real estate market in the entire EU).
