Core bonds eke out some gains today with Bunds outperforming US Treasuries. The German economy ministry said that the weak level of orders and deteriorating business sentiment suggest that weakness in the manufacturing sector will persist. Traded volumes are extremely low even given Summer conditions, so we don’t draw strong conclusions from the price action. The strength can’t be rhymed with gains on stock markets and/or higher oil prices. Citigroup kicked off Q2 earnings season with a small beat, while July Empire Manufacturing Business sentiment rebounded more as forecast in July (4.3 from -8.6 vs 2.0 expected). The German yield curve bull flattens with yields down 1.6 bps (2-yr) to 4.6 bps (30-yr). US yields decline by 0.6 bps (2-yr) to 1.4 bps (10-yr). 10-yr yield spreads changes vs Germany narrow by up to 6 bps. Greece marginally underperforms its peripheral neighbors after the Hellenic Republic’s announcement of the near term launch of a new 7-yr GGGB via syndication (likely tomorrow). Spanish bonds don’t react to the political deadlock. Socialist PM Sanchez said that all coalition/support talks with Podemos leader Iglesias were in vain. Sanchez’ Socialists won’t be able to gain next week’s parliamentary majority in a confidence week with centre right Partido Popular and Ciudadanos unlikely to abstain. In that case, the constitutional clock starts the countdown to a new snap election unless the premier wins parliamentary approval within two months.

Markets had a taste of the 2019Q2 earnings season today with Citigroup beating estimates. The dollar briefly ‘jumped’ after the release. The impact of a better than expected NY Empire Manufacturing (4.3 vs. 2) stayed very limited as important subseries (new orders, employment) showed it isn’t all puppies and sunshine. Investors also await the earnings season for more guidance before engaging in any directional positions. Dollar trading developed in extremely thin ranges (intraday spread of a meagre 20 pips) as a result. EUR/USD is trading sideways around 1.126. The trade weighted dollar (DXY) ekes out small gains into the high 96.8 area. USD/JPY’s attempt to settle above 108 currently fails.

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EUR/GBP retreated from recent highs near 0.90 over the past few days. Sterling’s reprieve didn’t last long however. The currency again faced moderate selling pressure today even though there weren’t any key data releases. Neither could sterling benefit from Gina Miller’s pledge to take the UK government to court should the next prime minister try to suspend Parliament to force a no-deal Brexit. Miller is a pro-EU campaigner, known for winning the legal fight over the parliamentary meaningful vote end of 2016. Anyway, sterling is back in the defensive although we don’t want to read too much in today’s technically driven and low-volume trading session. EUR/GBP is hovering back close to 0.90, completely erasing all of Friday’s losses. Cable took a dive to below 1.253 (from 1.258).

News Headlines

Turkish central bank governor Murat Uysal, who was promoted after President Erdogan sacked governor Cetinkaya last week, said that the country has room to maneuver on monetary policy. Recent improvements in inflation (expectations) created the space for a rate cut, he argued.

NY Fed governor Williams urged that the financial industry can’t afford to wait to shift away form Libor rates: Don’t wait for term rates to get your house in order. “Engage with this issue now and understand what it means for your operations. Recognize where your exposure lies and deal with the contracts that mature after 2021 that lack robust fallback language.”


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