In some way today’s global market development was a bit similar to yesterday. Chinese markets are still taking the lead in in a risk rally with stocks and the yuan outperforming. Several other regions/markets are trying to join this course but are trailing it by (quite a big) distance. Especially European equities fail to generate a strong momentum. After opening with gains of 0.5% to 1.0%, European indices entered sideways, directionless trading. In line with recent orders and production data, German foreign trade data again disappointed with both imports (3.5% M/M) and export (9.0%) printing well below expectations. Yesterday, equities received a better bid as soon as US markets got involved. However, US investors this time also turned a bit more cautious, maybe as the US posted a record rise in new daily registered corona infections (62 000). The US weekly jobless claims were the data series in focus. Contrary to the previous three weeks when the series declined slower than expected, claims in the week ending July 4 declined to 1.314 mln (1.375 was expected). Continuing claims (decline to 18.06 mln) were also better than expected. The report suggests that, at least for now, the rise in new US infections doesn’t prevent (some) Americans to gradually return to their job as the economy reopens. The direct impact of the report on global trading was remarkably small. US equity futures and European equities gained a few ticks. The impact on bond markets was close to non-existent. US yields still decline between 0.4 bp (2-y) and  2bp (30-y). US investors look forward to a $19 bln Treasury 30-y bond auction later today. German yields decline between 0.5 bp (30-y) and 1.4 bp, the 5-y slightly outperforming. 10-y intra-EMU spreads versus Germany mostly change less than 1 bp. The recent tightening is taking a breather as investors await more concreted news from the EU recovery package that will be on the table at next week’s EU summit.

This morning, before the open of the European markets, it looked that EUR/USD would be able to clear the 1.1350 resistance in a sustainable way. However, the rather lackluster momentum on European equity markets also took the drive out of the EUR/USD rally and triggered intraday profit taking. Even so, EUR/USD bulls still can consider today’s price action as the pair being capture in a buy-on-dips pattern. EUR/USD currently again returns to the 1.1350 area. USD/JPY was again area of extreme calm, but at 107.20/25 the pair is still holding near the lowest levels of this week. Since last week, sterling developed a gradually bottoming pattern against the euro. EUR/GBP this week dropped below the 0.90 barrier, triggered a further reduction in sterling shorts. The pair returned in the previous 0.8865/0.90 consolidation band. We didn’t see any UK specific story behind the sterling rebound (EUR/GBP 0.8955 area).

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News Headlines

Chinese banks are preparing contingency plans in case the US pushes through with sanctions against China over imposing the contested national security law. Chinese lenders are looking at the possibility of being cut off from US dollars. Earlier this week, the US also threatened to destabilize the Hong Kong dollar peg, which could also come under the form of limiting HK banks to buy USD..

ECB policy maker Villeroy de Galhau thinks the central bank should examine targeting average inflation, saying it is an “open question” whether inflation below the 2% target should be compensated for by higher inflation for a period in the future. He added that rates will remain favorable as long as necessary while keeping liquidity very abundant and said the ECB remains ready to be “as innovative as needed with these instruments”.


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