Markets:
Global core bonds lost some ground in a risk-on environment, reversing part of yesterday’s gain. US President Trump’s criticism on the EU, China and Fed didn’t really resonate in today’s action. The eco/event calendar was empty, resulting in another low volume August trading session. The agenda heats up later this week with FOMC Minutes, EMU PMI’s and a speech by Fed Chair Powell on the economy and monetary policy in Jackson Hole. US yields add 1 bp (2-yr) to 1.5 bps (5-yr) at the time of writing. German yields gain up to 1.9 bps (5-yr). The 2-yr’s performance (+3.9 bps) is due to a Bloomberg benchmark change. Peripheral yield spreads vs Germany narrow by 11 bps for Greece and 4 to 6 bps for Portugal, Spain and Italy. General risk sentiment is at play. Moody’s announcement to delay its decision on the Italian review for possible downgrade (currently Baa2) until after the 2019 budget discussions (October?) had no impact.
Dollar trading was sentiment driven and in any case confined to rather narrow ranges given today’s empty economic calendar. After closing higher yesterday following Trump’s dollar negative remarks, EUR/USD jumped further north, enjoying a short squeeze in the early trading hours. The pair temporary reclaimed the important 1.1510-resistance level. However, only a sustained break (i.e. a weekly close above 1.1510) would alter the picture for EUR/USD, at least for the short run. Throughout the day, EUR/USD fought valiantly to hold territory, hovering sideways in a 1.1510-1.1540 trade channel. The battle is still raging as the couple temporarily dipped below 1.15 again before trading back at around 1.1512 at the time of writing. Today’s risk-on environment propelled USD/JPY from its intraday low back above the 110-mark (110.37 currently).
UK’s CBI data came in close to expectations and had little to no impact on sterling, nor did diplomats in Brussels’ warning that the October deadline for Brexit will probably have to be delayed. The brexit discussions between UK Brexit Minister Raab and EU chief negotiator Barnier restarted today around noon. For now, meaningful news headlines are scant. The currency pair followed EUR/USD in lockstep and is currently changing hands at 0.8963.
News Headlines:
In a rare news conference, China’s central bank said it will not deploy strong stimulus measures to support the slowing economy. It will however provide more than sufficient liquidity and offer more help to companies in obtaining financing. It further reiterated that the yuan won’t be used as a weapon in the trade conflict.
UK CBI August data showed more manufacturing companies expect higher selling prices in the coming quarter (on balance 15%) while fewer reported total order books to be above normal (7%). However, the CBI said the manufacturing sector is in a “robust shape” while warning that a no-deal Brexit would be “immensely damaging”.
The Hungarian central bank (NBH) left its main interest rates unchanged at 0.9% for the 3-month deposit rate and -0.15% for the overnight deposit rate.
Diplomats in Brussels warned the informal October deadline for Brexit is in jeopardy as negotiations drag on. They said EU leaders probably will have to hold an emergency meeting in November to consider any agreement. Some even mentioned December, which would leave little time for ratification before the UK leaves in March 2019.
