Markets
Global core bonds edge slightly lower today with US Treasuries underperforming German Bunds following the release of US eco data. Retail sales and the empire manufacturing survey remain strong, but printed close to forecasts. Traded volumes are extremely low. European stock markets treaded water near opening levels. Bank of America Q2 earnings were good, but not strong enough to impact global risk sentiment. The closely watched meeting between US President Trump and Russian President Putin started, but didn’t produce any meaningful headlines yet. Brent crude continues moving volatile, losing again $2/barrel. The US yield curve shifts 2.3 bps (2-yr) to 2.9 bps (30-yr) higher at the time of writing. German yield add 0.3 bps (2-yr) to 2 bps (10-yr). 10-yr yield spread changes vs Germany are virtually unchanged.
EUR/USD started the new week on a solid footing. Last week’s rejected downside test triggered a further gradual euro short-squeeze. A first attempt to regain the 1.17 mark was rejected, but a second attempt at the onset of the US trading session succeeded. The move was mainly order driven and technical in nature. We didn’t see a clear link with bonds or with equities/global risk sentiment. However, the intraday USD decline halted again after the publication of the US retail sales. Sales suggested solid Q2 US GDP growth, especially as May sales (which were already strong) were substantially upwardly revised. US yields and the dollar gained marginally upon the release. EUR/USD trades currently again just north of the 1.17 big figure. USD/JPY traded with a tentative negative bias this morning in Europe, but the decline also halted after the US data. The pair trades currently in the 112.40 area. In broader perspective, the moves in the major USD cross rates remain modest. EUR/USD is holding a sideways consolidation pattern. USD/JPY holds recent gains, but the rally is taking a breather.
Today, the headlines in the UK financial press were still dominated by the hefty debate on May’s Brexit strategy as it was set out in last week’s White Paper. A debate/vote in parliament today on the post-Brexit customs regime is seen as an indicator on the support (or the absence of support) for May’s approach. Early this morning, the debate had no additional negative impact on sterling. In technical trade, sterling even gained a few ticks. EUR/GBP filled bids in the 0.8820 area. Maybe, investor positioning was also, at least to some extent, influenced by a large set of UK eco data to be published later this week. If the data are OK, the BoE is expected to raise rates at the August 2 meeting. Later in the session, sterling momentum dwindled again as headlines suggested that the pro-Brexit wing in the conservative party would step up their attacks on May’s ‘soft’ Brexit approach. EUR/GBP trades again in the 0.8830 area. Cable is changing hands near 1.3260 (intraday top in the 1.3290 area).
News Headlines
In a response to the latest call for a second EU referendum by former cabinet minister Justine Greening, the Downing Street spokesman explicitly ruled out a second referendum “in any circumstances”, saying “the British public have voted to leave the EU”.
US headline retail sales in June came in at a solid 0.5% (as expected). The core measure excluding cars and gas printed at 0.3% (vs. 0.4% expected). Both are down from an exceptionally strong May which saw its figures upwardly revised to 1.3%, the strongest increase since January 2017.
Earlier opposition from Italy’s anti-establishment government to the CETA might be easing as its agriculture minister Centinaio said in Brussels “nobody is in a hurry to bring CETA to the chamber” for a parliamentary vote.
