Global core bonds traded with a slight downward bias. Strong EMU PMI’s and a decrease in tension on intra-EMU bond markets contributed to the move. The Italian 10-yr yield spread vs Germany narrows by 6 bps. Yesterday’s +23 bps widening on political news was probably again exaggerated by low volumes. The Greek 10-yr yield spread narrows by 17 bps following yesterday’s evening’s Eurogroup approval of the release of a final and higher bailout tranche and the extension of the Greek redemption profile. Greece will now start repaying its debt only from 2033 instead of 2023 and the Eurogroup agreed to re-evaluate the situation in 2032. The main losses for the Bund occurred at the start of trading. Afterwards, sideways action kicked in. Global equities traded cautiously higher after yesterday’s losses, but uncertainty on the next developments in the China-US trade dispute continues to inspire some investor caution. US yields are rising up to 1.8 bp, with the 10-y sector underperforming. German yields show a similar patter with the 5-y yields rising 1 bp.
EUR/USD gained new momentum in the run-up to the start of European trading and received an additional push on the back from stronger than expected French PMI numbers. The French outcome was later confirmed in German and EMU readings, but the magic for the single currency was over. EUR/USD settled in the upper half of the 1.16 area, before getting knocked lower around European noon. Der Spiegel reported on secret SPD meetings, preparing for fresh German elections which weighed on the euro. Reports that US officials try to boost trade talks in China in order to avoid that tariffs take effect on July 6 had no direct impact on trading. EUR/USD trades currently in the mid 1.16 area. USD/JPY gained modestly at the start of European dealings, but the risk-on trade was not strong enough to sustain further gains. The pair still struggles not to fall back below the 110 mark.
EUR/GBP followed to some extent the intraday trading pattern of EUR/USD, but price swings were much smaller. It changes hands currently around 0.8765. There were no important eco data. Regarding Brexit, there was some buzz around a statement of Airbus, questioning its UK activity/investments in case of no Brexit deal. However, the issue had no big impact on sterling trading.
Canada released some disappointing numbers today. Retail sales (MoM) in April dropped by 1.2%, the largest decrease in two years. Canada’s inflation rate (YoY) remained above the 2% target at 2.2% Y/Y in May. However it was less than the 2.5% forecasted. Core inflation stays at 1.9% Y/Y.
OPEC and its allies seemed to have found an agreement to raise oil output with a theoretical 1 million b/d. It appears Saudi minister of Energy has convinced Iran to support the increase, despite the criticism on a possible output increase this week as it faces export restrictions imposed by the US.
The Composite PMI in the Eurozone was 54.8, stronger than the expected 53.9. It is up from 54.1 previous month. There is however a striking difference between Manufacturing PMI (down to 55.0 from 55.5 last month) and Services PMI (up to 55.0 from 53.8 last month).