Core bonds trade mixed today with German Bunds outperforming steady US Treasuries. There’s no real trigger for Bund strength. European stock markets trade directionless as oil prices pared a small part of yesterday’s significant losses. Weak demand at Germany’s 30-yr Bund auction and a marginal upward revision to June EMU CPI normally plead against Bund strength, but obviously not so today. ECB board member Coeuré repeated that underlying inflation remains muted and that the governing council is determined to act if needed. US housing starts (marginally) and building permits disappointed. The release of the Fed’s Beige Book, preparatory document for the July meeting, can still grab some market attention tonight. Changes on the US yield curve vary between -1.2 bps (10-yr) and +0.4 bps (2-yr). The German yield curve bull flattens with yields down 1.3 bps (2-yr) to 5.1 bps (30-yr). 10-yr yield spreads changes vs Germany are close to unchanged with Greece (+4 bps) underperforming.

This morning, EUR/USD continued suffering from the downside bias that already dominated trading yesterday. Solid US data yesterday, a faltering risk sentiment and yield spreads widening in favour of the dollar still gave the US dollar the benefit of the doubt in summer holiday market conditions. At the same time, poor EMU car sales data confirmed a lackluster economic momentum in the region and weighed on the euro. EUR/USD dropped to the 1.12 figure but the 1.1181 MT support stayed out of reach. EMU June headline inflation printed marginally stronger than expected at 1.3%. The impact on the euro was negligible, but it helped to put a floor for the single currency. The news flow from the US didn’t bring much inspiration to revive FX trading. US housing data were soft but, as usual, were no big issues of USD trading. EUR/USD hovers in the 1.1215 area. USD/JPY (108.25/30 area) stayed well north of 108 as US equites markets are looking for direction as the most recent US equity upleg stalled.

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Sterling continued struggling to prevent a new downleg both against the euro and the dollar. Selling sterling remains the path of the least resistance for sterling traders as UK politicians reiterated that the chance of a no-deal Brexit is currently underpriced (Brexit Secretary Steve Barclay). UK June inflation printed close to expectations but a further decline in house prices was seen as an illustration of Brexit uncertainty eroding sentiment for UK assets. EUR/GBP tested the 0.9050 area. From there, sterling selling pressure eased, at least temporarily. EUR/GBP is trading in the 0.9035 area. Cable is changing hands in the low 1.24 area. At least for now, there is no technical signal of a potential trend reversal anytime soon.

News Headlines

UK Brexit minister Barclay thinks chances of a no deal scenario are underpriced when asked about the likelihood of it by UK lawmakers. He pointed at the fact that the amount of legislation required to pass for a deal is significant compared to the relatively short period of time in September and October parliament is due to sit.

The EU has opened an antitrust investigation against Amazon today over its use of customer information. The move is likely to trigger frustration at the US administration. It had its State Department sent letters to embassies in a.o. Spain today, ordering them to warn local governments for retaliatory measures if ‘Google tax’ like or other “discriminating” legislation against US-based companies is passed.

June US housing data disappointed. Housing starts retreated from 1269k to 1253k (-0.9% MoM) while building permits fell to the lowest in two years (1220k, -6.1% MoM). The decline is driven by a significant drop in multi-family residential.


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