German bonds outperformed US’s today. The German bund opened higher and received a second round of support following the weakest Chinese industrial data in 17 years (see below). Germany’s 10y yield even hit a new record low of -0.27% but paired most of the decline on stronger than expected US retail sales (see below). Other yields across the curve declined about 1bp. Peripheral spreads narrow 3 bps (Italy, Spain and Portugal). The US Treasury note held steady during Asian trading hours before gaining momentum at the start of European dealings. But strong US retail sales and decent industrial production figures wiped out all previous intraday gains and even more on the short end of the curve. The US yield curve bear flattens with yields changes varying from +2bps (2y) to roughly flat (10y).

EUR/USD trading was again order driven and technical in nature this morning as investors were looking for the last important set of eco data ahead of next week’s Fed meeting. Sentiment on risk remained fragile and US yields initially kept a downward bias. As was the case over the previous days, a shy attempt of EUR/USD to rebound (on those lower US yields) again ran into resistance very soon. Were USD investors coming to the conclusion that enough Fed easing was already discounted? Whatever the reason, EUR/USD drifted lower going into the  publication of the US retail sales. May sales were solid and the April figure was substantially upwardly revised. US pay production was also slightly stronger than expected. This reinforced the question whether the Fed should embark for an protracted, aggressive easing cycle as is discounted by markets. US yields and the dollar jumped higher. US president Trump repeated its critics on Fed Powell for having raised rates so much. However, this time the impact on the dollar (and US yields) was limited. EUR/USD dropped below the 1.1250 handle and trades currently around 1.1240. USD/JPY rebounded from the 108.20 area to the 1.10845 area, even as equities show a very hesitant picture.

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Having witnessed the outcome of the first voting round yesterday, markets now await the second ballot for UK’s next leader next Tuesday. Matt Hancock decided to withdraw today, which narrows down the candidates list to six. This wait-and-see mode and the lack of economic data forced sterling into a technical and sentiment driven trading pattern today. The risk-off climate pushed EUR/GBP back north of the 0.89-handle, but moves were limited. Cable’s decline was more pronounced as the May retail sales in the US came in pretty strong. The couple slipped to 1.262 (down from 1.268).

News Headlines

A delayed batch of Chinese data came in mixed. Retail sales rebounded from 7.2% YoY in April to 8.6% in May. The ongoing trade tensions do leave traces on the industrial sector however. Production figures disappointed with an unexpected decline to 5.0% YoY (vs. a stabilization at 5.4% expected), the lowest in 17 years.

Swedish prices unexpectedly rose faster in May with CPIF headline inflation printing at 2.1% YoY (0.3% MoM) whereas a slight decline to 1.9% vs. last month was expected. Core measures also increased to 1.7% vs. 1.6% in April (1.5% anticipated). The Swedish krona strengthened to 10.64.

US retail sales topped expectations. The headline figure rose 0.5% MoM vs. an upwardly revised 0.3% in April. Core measures showed a similar positive surprise with the retail control group – a proxy to consumer expenditures in US GDP – also printing at 0.5% MoM, up from a bumped 0.4% in April.


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