Markets
Of the several themes that dominate markets, the trade topic took center-stage again today. The US Note future trended further lower after Fed’s Bullard dismissed a 50bps rate cut in July yesterday. Constructive comments from US Treasury Secretary Mnuchin (“trade deal is 90% complete”, “hopeful that a trade deal will be found”) extended the downleg but were soon undermined by Trump. The US President said there would be a substantial amount of additional tariffs if there’s no agreement reached with China. The Note future rebounded from intraday lows (yields retreated) in the wake of the levy threats. Core US durable goods data was better than expected but with little impact on trading. The US yield curve bear steepened with the wings of the curve outperforming the belly. Yields changes vary from 0 bps (2y) to 3 bps (5y) over 2.4 bps (10y) and 1.5 bps (30y). German yields followed the US trading pattern in lockstep, eventually ending virtually unchanged across the curve. Peripheral spreads narrow marginally with Italy (-4bps) outperforming.
EUR/USD trading was locked in a very narrow 1.1350/75 sideways range. Investors await more guidance from the G20 meeting later this week as an upside test north of EUR/USD 1.14 was rejected yesterday. Sentiment on risk improved as US Fin Min Mnuchin said the US and China were close to reaching a trade deal. However, the initial optimism was soon downplayed as president Trump reiterated that he could still impose additional tariffs if no deal was reached. Equities, US yields and USD/JPY (107.60 area) gained some ground on a modest trade optimism. At the same time, a presumed easing of the global trade tensions would also remove a major roadblock for the European economy and can be seen as supportive for the single currency, too. EUR/USD didn’t go anywhere and is trading in the 1.1355/60 area. US eco data were mixed (durable goods orders better than expected, but the May trade deficit widened more than expected) but had again close to no impact on USD trading.
Several BoE governors including BoE governor Carney appeared before the Treasury committee of the UK parliament. The BoE maintained its assessment of the May inflation report, indicating that limited and gradual interest rate hikes might be needed if the economy evolves as expected. At the same time, the BoE-governors acknowledged the difference between the expected BoE interest rate path and market pricing, anticipating rate cuts. The BoE also indicated that policy easing was more likely if the new PM would aim for a no deal Brexit. EUR/GBP temporarily lost modest ground at the start of the hearing, but soon returned to opening levels. The market was/is already positioned for a softer BoE and today’s hearing didn’t change markets’ assessment. EUR/GBP (0.8965 area) is holding near recent peak levels. Cable hovers in the upper half of 1.27 as the dollar regained some ground yesterday.
News Headlines
The Norwegian April unemployment rate declined sharply to 3.2%. A 3.5% unchanged reading was expected. The report reinforced the case for further tightening as indicated by the Norges bank. EUR/NOK declined from the 9.71 area to currently trade in the mid 9.67 area.
US durable goods numbers were mixed in May. The headline figure (-1.3% MoM) disappointed after an already dreadful April as nondefense aircrafts slumped again. Core measures surprised on the upside however with shipments (a proxy for the GDP investment component) rising 0.7% MoM (vs. 0.4% in April).
