US Treasuries and core EGB’s remained under pressure from the start of trading this morning and the decline persisted throughout the session. US yields rose 2.1 bp (2y) to 2.8 bp (30-y) with the 10-yield almost touching the 3.0% barrier. US eco data (retail sales production) were mixed and were no decisive factor for bond trading today. Several US Fed governors gave their view on monetary policy and on the economy. Comments from Fed’s Evans did catch the eye as he indicated it is time to return to a more conventional monetary policy. This is in line with strong fundamentals for growth and with inflation developing in line with the symmetric 2% target. German yields followed to a large extent the development of US treasuries. The German yield curve bear steepens with 2-year yields rising 0.1 bp while 10/30-y yields are rising close to 3 bp.
The dollar started the session on a soft footing as global sentiment on risk remained positive and as tensions on emerging markets eased further. Yesterday’s rather upbeat comments of ECB’s Draghi apparently also still encouraged euro bulls. EUR/USD filled bids in the 1.1720 area mid-morning in Europe, but a real test of the 1.1733 intermediate resistance didn’t occur. US August retail sales disappointed, but July sales were upwardly revised. The dollar tried a shy down-move upon the release, but the topside in EUR/USD proved tough. USD bulls soon came again in control. Some hawkish comments from Fed’s Evans and a rise in short term US yields maybe also helped to tilt the balance in favour of the US currency. EUR/USD is changing hands in the 1.1660 area. USD/JPY still struggles to regain the 112 big figure in a sustainable way.
In line with recent price action, the EUR/GBP cross rate held a rather tight sideways range in the 0.89 area. The intraday price action was again haunted by Brexit comments from different sources. BoE’s Carney repeated in a speech in Dublin that the Bank is prepared for ‘whatever path the economy takes, including a wide range of potential Brexit outcomes’. However, also this ‘whatever it takes commitment’ from the BoE Chairman also able to provide a clear directional guide for EUR/GBP trading (currently near 0.8910). Cable (1.3090 area) returns back below the 1.31 mark.
Swedish August CPIF inflation declined -0.2% M/M resulting in an unchanged Y/Y reading (2.2%). The market expected a modest rise to 2.3%. The soft inflation report weighed on the Swedish Crown as markets questioned whether the Riksbank would be able to raise rates in December or February next year, as indicated.
Growth in US retail sales slowed in August to 0.1% M/M, the smallest gain in six months. Amongst others, a decline in motor vehicle sales was to blame. However, the July figure presented a substantial upward revision from 0.5% M/M to 0.7% M/M. So, the data suggest an ongoing solid contribution from private consumption to Q3 US GDP growth. US August industrial production was slightly stronger than expected at 0.4% M/M. July rise was upwardly revised from 0.1% to 0.4% M/M.
Today, the Central bank of Russia unexpectedly raised its policy rate by 0.25% to 7.50 %.It was the first increase of the policy rate since 2014. The policy statement indicated that the Bank will consider further increases in the policy rate. The bank will also will continue to suspend foreign exchange purchases until the end of the year.