Markets
Global core bonds traded mixed today with stable US Treasuries outperforming declining German Bunds. We think that the move is mainly technically inspired following the engulfing signal in German yields earlier this week. The eco calendar only contained second tier US eco data. German supply might have played a minor role. The German yield curve bear steepens again at the time of writing with yields 0.7 bps (2-yr) to 2.7 bps (30-yr) higher. The 10-yr yield moved above the 0.4% mark. US yield changes vary between + 0.2 bps and +0.5 bps. As the US trading session gets going, they show tentative signs of gaining some more upward traction as well. 10-yr yield spread changes vs Germany are almost unchanged with Italy outperforming (-4 bps). 5SM leader Di Maio denied a La Stampa report this morning suggesting that the Italian government is pushing the ECB to start a new round of QE in order to protect Italy from financial speculation and to avoid rating downgrades. Fitch reviews the Italian BBB rating this weekend. We don’t expect a downgrade yet, but the outlook will likely become negative.
There was little hard news to guide USD trading today. The risk rally that fueled the USD decline of late slowed. The US currency regained a few ticks against the euro in technical trade. EUR/USD returned to the mid-1.16 area, but the pair is holding well within the 1.15/1.1850 trading range. US Q2 GDP was revised slightly higher to 4.2% Q/Qa (4.0% was expected), but the revision was too small to have an impact on USD trading. In the absence of other (eco) news, USD traders are looking for guidance from the equity markets/global risk sentiment. For now, global sentiment (especially on US equity markets) is not too bad, preventing a return of safe haven flows to the dollar. EUR/USD trades currently in the 1.1675/80 area. USD/JPY gains slightly ground in a daily perspective (111.35 area) but the broader picture remains indecisive.
Sterling succeeded a modest comeback today after recent losses. We didn’t see a specific trigger. Sterling initially held near recent lows against the euro this morning as markets pondered the significance of a rumored delay to November for the EU and the UK to strike a Brexit divorce deal (instead of the October EU summit). Brexit headlines this time didn’t cause additional damage for sterling, contrary to what was the case recently. The UK currency even staged a technical rebound, especially against the euro. EUR/GBP is currently trading in the 0.9060 area. Cable even regained a few ticks even as the dollar was better bid across the board. The technical picture for sterling remains fragile, despite today’s ‘rebound’. We don’t anticipate a sustained comeback.
News Headlines
The central bank of Turkey has announced it will reintroduce borrowing limits for banks’ overnight transactions. It will double the limits from levels which applied before August 13, when the central bank offered unrestricted funding. It then removed the borrowing limits in response to stress in the market.
Nafta trade talks will continue tonight with Canada’s Foreign Minister Chrystia Freeland expected to visit Washington to negotiate with US Trade Representative Robert Lighthizer. The duo is said to discuss possible Canadian concessions on the import of US dairy products, which is a key request of the Trump administration.
Argentine President Mauricio Macri said today that he asked the IMF to accelerate disbursements from the $50 billion credit line that was granted after the country was immersing in a financial crisis in June. Argentina then received the first $15 billion of the program and was expected to receive another $3 billion in September.
