There were no important data in the US or Europe today. So markets had look for non-eco news and mainly relied on their internal dynamics. Chinese equity markets this morning continued their outperformance from earlier this week. Investors apparently feel comfortable with the idea the country has the virus under control and that it might be a frontrunner in the economic recovery. Headlines the US and other countries preparing punitive action in the wake of the Chinese security law for Hong Kong for now was no obstacle for the China optimism. However, the China (out)performance this time was no guide for most other Asian market or Europe. A further spreading or flaring-up of the virus in several countries including in the US and even in some regions in Europe, dented investor optimism, especially for stocks in cyclical sectors. In rather lackluster trading, European indices are losing between 0.5% and 1.0%. With no eco news on the agenda, US indices recover some of yesterday’s late session setback.

Bond markets showed a slightly different picture compared to yesterday. After a strong performance of US bonds yesterday, Bunds today outperformed their US counterparts. Germany successfully sold a 5-year Bond (€ 5 bln) yielding -0.66%, with a bid cover at 1.9. The German yield curve bull flattens with yields declining between 0.2 bp (2y and 3 bp (30-y). Intra-EMU spreads versus Germany were little changed after recent substantial tightening. US yields are drifting marginally higher rising between 0.2 bp (2-y) and 1.8  bp ( 30-y) as investors await US Treasury auctions of 10-y bonds ($29 bln, this evening) and 30-y Notes ($19 bln tomorrow).

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On FX markets, the TW dollar (DXY) doesn’t profit from the pause in the risk rally. The index failed to regain the 97 barrier (currently 96.60). EUR/USD initially hovered in the upper part of the 1.12 big figure. Intermediate support in the 1.1260 area, was left intact. The pair even returned north of 1.13 area in US dealings followed by a technical acceleration and showing resilience. In line with recent price action, USD/JPY still traded erratic in the 107.50 area.

In the UK, Fin Min Sunak announced a series of new measures to support the economy, including a VAT reduction for hospitality and tourism, a temporary reduction in the tax on home purchases and a new job retention bonus plan. According to the government, the cost of today’s plan might be up to £30 bln, additional to other measures that were already rolled out in recent months. Sterling temporarily gained a few ticks after the announcement of Sunak’s measures. Even so, moves are very limited. EUR/GBP still hovers in a tight range near the 0.90 pivot.

News Headlines

ECB president Lagarde suggested the central bank could use its asset purchase scheme – totaling €2.8tn as of June 2020 – in pursuing its green objectives. The ECB could do so by selling so-called “brown” bonds issues by carbon-intensive companies and increase holdings of greener industries. Addressing the climate change is part of the strategic review that recently restarted after being put on hold after the coronacrisis struck in March..

A survey by showed 40% of American consumers who spent money on movies, events or at bars before the pandemic now plan to spend less on those activities. Meanwhile, American Express research revealed some 62% of small businesses need spending to return to normal by the end of the year in order to stay in business.


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