The US Note future followed volatility in JGB’s during Asian dealings, but global core bonds treaded water near opening levels afterwards. The market is clearly is Fed-countdown mode and expects a dovish outcome. Weak EMU industrial production was expected following earlier national reading while the German economy ministry also warned for a bleak Q2. Second tier eco data and the upspring in the oil price (see headlines) failed to do the trick as well. The US yield curve bull steepens marginally with yields up to 1.2 bps (2-yr) lower. Changes on the German yield curve vary between -0.7 bps and +0.3 bps. Peripheral yield spreads vs Germany narrowed by 3 bps to 6 bps.

A lackluster trading session kept EUR/USD in a tight range today. Euro zone industrial production declined for a second straight month in April (-0.5% MoM) but that didn’t came as a big surprise to markets after horrible German data earlier in June. The euro did feel some selling pressure starting around noon. EUR/USD reached an intraday low after the IMF warned that the euro zone’s growth forecasts are “precarious” given the risks surrounding trade and Brexit. The technical driven decline stopped short of breaking the 100-day moving average (mid 1.127/8’s) before settling around 1.128. USD/JPY completely recovered an intraday loss (108.5 to 108.2), now trading virtually unchanged compared to yesterday’s close.

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Today was all about the first voting round of the process to find Prime Minister May’s successor. Notorious hardliner Esther McVey got eliminated by default as she received the least support (9 votes) of the 313 Tory members in Parliament. Others exiting the race are Andrea Leadsom (11 votes) and Mark Harper (10), having received less than the required minimum of 17 votes. Boris Johnson takes the lead by 114 votes, leaving numbers two and three, Jeremy Hunt (43) and Michael Gove (37), far behind. The second voting round for the seven remaining candidates takes place next Tuesday. Sterling suffered a bit from nervousness going into the vote but pared losses after the results got public. Johnson’s crushing victory simply confirmed what markets widely expected. EUR/GBP dipped below 0.89 (0.889 at the time of writing), little changed vs opening levels. Cable showed a similar trading pattern and is currently changing hands close to but below 1.27.

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The Swiss National kept its deposit rate unchanged at -0.75%. The central bank introduced a new SNB policy rate (-0.75%) which will replace the target range for the three-month Libor, used previously. The SNB’s willingness to intervene in the FX market, against the “highly valued” Swiss franc remains essential to lower the attractiveness of CHF investments and ease pressure on the currency.

Brent crude oil pared yesterday’s losses, surging from $60/barrel to $62.50/barrel. The rally started following reports of attacks against two oil tankers in the Gulf of Oman which inspired Middle East supply worries. The reduction in OPEC’s 2019 oil demand growth forecast couldn’t reverse the leap higher.

The most hawkish member of the Czech national bank, Vojtech Benda, warned that the overall balance of risks is rather inflationary. He’ll carefully consider whether there’s room for another rate hike already at the next meeting (June 26) as domestic price pressures and a weaker-than-expected currency outweigh effects of the global slowdown.


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