Markets

Risk sentiment remains  fragile with markets particularly sensitive to trade related news. Constructive headlines suggesting a US/Sino trade truce would be announced at the G20 summit initially supported core bond yields. Sentiment dented later on after the Wall Street Journal reported President Xi will present Trump the terms he wants the US to meet before the trade dispute can be settled. Investors worry this might complicate the already difficult expected talks even further. The US yield curve bull steepens with the wings marginally outperforming the belly. Yields change -2 bps (2-yr) to -1.7 bps (30-yr). The German yield curve also shifts south, facing additional pressure from today’s inflation numbers. Regional German data initially suggested an uptick of inflation in June but the harmonized figure eventually showed a meagre 0.1% MoM (vs. 0.3% in May) or 1.30% YoY (stable). Yields slip about 1 to 1.5 bp at the longer end of the curve. Peripheral yield spreads widened with Spain (+ 3 bps) underperforming. Italy (+ 1bps) couldn’t really profit from a 10-yr and 5-yr auction gone well.

Global markets are captured in an erratic trading dynamics as investors don’t know what to expect of the meeting between presidents Trump and Xi-Jinping and of the G20 event in general. This unstable pattern was also visible in EUR/USD. EMU data caused some additional intraday noise. The dollar initially profited from hopes on a trade truce and higher US yields in early European dealings. EUR/USD gained modest ground as German regional CPI data printed higher than expected. Poor EC EMU confidence had only limited impact. Later, risk sentiment turned more fragile, weighing on US yields and on the dollar. The final overall German CPI showed a discrepancy between domestic data (1.6% Y/Y) and the harmonized CPI (1.3%), leaving euro traders further in doubt. EUR/USD came off the intraday peak. US data (GDP revision and jobless claims) were mixed with activity indicators slightly disappointing but PCE deflators stronger than expected. They had had little impact on trading. EUR/USD is trading in the 1.1365/70 area. USD/JPY trades near 107.85/90. USD trading remains highly conditional on what will happen this weekend, but for now the USD rebound didn’t go far.

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EUR/GBP trading developed in a very tight sideways range in the mid 0.89 area. There were no important UK eco data. The usual Brexit-noise also failed to guide intraday sterling trading. PM frontrunner Johnson said that members of his cabinet will have to be committed to the UK leaving the EU by 31 October, with or without a deal. On the other hand, UK PM May indicated that she could join UK conservative MP’s who are trying to prevent a chaotic no deal Brexit. This time, the comments had little impact on sterling trading. EUR/GBP is changing hands in the 0.8960 area. Cable is trading near 1.27.

News Headlines

Turkish lawmakers are preparing a bill that would allow the central bank to transfer more of its lira reserves to the nation’s Treasury, Bloomberg reported. The ruling party held back from proposing a similar law some weeks ago out of fear for it could further roil financial markets amid heightened lira volatility.

The European car lobby (ACEA) slashed its passenger car registrations from a 1% rise to a 1% decline for 2019, citing slower growth and uncertainty over Brexit. Car sales are now expected to just exceed 15 million this year. Production of passenger cars dropped 1.4% in 2018, the ACEA added.

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