Market movers today
The markets will digest the G20 Finance minister meeting over the weekend. Not least comments on the currency front after Trump’s tweets criticising the strengthening of the USD and repeating that China and the EU have been ‘manipulating their currencies. Trump seems increasingly keen on taking on a big battle with the EU and China and it seems more evident that the US-China trade war is here to stay for some time. Tariffs on autos could still hit the EU (not least Germany).
On the data front, we have euro consumer confidence and US existing home sales today. Especially, US home sales may attract some attention after weak housing starts and permits last week flagged a potential housing slowdown.
For the rest of the week, we have euro Flash PMI and German Ifo (Tuesday), the ECB rate meeting, US durable goods orders (Thursday) and Q2 GDP for the US (Friday).
Selected market news
The Bank of Japan (BoJ) is in focus this morning as the yen appreciated and yields on Japanese government bonds surged with the 10Y benchmark bond yield jumping 6bp on opening amid speculation that the BoJ might modify its yield control policy. The sell-off in the Japanese fixed income market triggered a fixed-rate operation announcement from the BoJ where the bank offers to buy an unlimited amount at a fixed price of 0.1%. The fixed rate announcement has helped stabilise the yen market for now, but price actions are likely to remain volatile ahead of the BoJ meeting next week on 27-28 July.
USD sold off substantially on Friday and EUR/USD bounced above 1.17 on comments from US President Donald Trump saying that he is ‘ready to go’ with additional tariffs and that China, the EU and others have been manipulating their currencies. On Saturday, US Treasury Secretary Steven Mnuchin tried to ease currency war concerns in a press conference and reiterated that America’s longstanding commitment to a strong USD remains intact and that the US is not trying to intervene in the dollar market. EUR/USD has continued higher and trades at 1.1735 this morning. The currency issue was not discussed at the G20 meeting this weekend, according several media sources, but the statement from the G20 meeting concluded that ‘risks to the world economy have increased’ with main risks being ‘rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth’, according to the statement.
The US curve for 2Y10Y steepened on Friday after Trump also lashed out at the Fed, saying that higher rates were undermining America’s competiveness. Even though few believe the Fed will bow to demands from Trump, the curve steepened as the long end sold off, with yields on 10Y US Treasuries rising about 4bp. The sell-off in the long end of the US yield curve might also be due to the reports that the BoJ is considering tweaking its yield control policy. If this story gains more attention, it might also weigh on European fixed income, given the sizeable Japanese flows into European bonds over the past two years.