As the eco calendar looked all but empty, trading was once again left in the hands of overall sentiment and technical considerations. European traders started off on rather cautious footing in the wake of declining Asian equity markets – even, and especially, in China. Risk appetite found its way back gradually however. EMU stocks turned green (gains of about 1%) after opening some 0.6% lower to finish the week virtually unchanged as investors are looking for guidance. Next week’s kick-off of the Q2 earnings season might provide that. US stocks open -0.3% to +0.4%. Several EU officials, including Germany’s Scholz and freshly elected Eurogroup president Donohoe sought to downplay expectations for next week’s high profile EU summit but their comments went largely unnoticed. Instead, a report from Gilead that a treatment with its Remdesivir medicine reduces the risk of death further supported the intraday sentiment recovery. Core bonds gained quite some ground today despite stocks rising. The decoupling of bond markets from equity markets thus continues. Core bond yield curves bull flatten though yields left intraday lows after the Gilead headlines. US rates currently fall 1 bps (2-yr) to 3.4 bps (30-yr), extending yesterday’s strong decline mainly at the long end of the curve. The bear steepening that started in May has largely been reversed by now with yields some 30 to 40 bps lower in the 10y-30y range. A similar story holds for the German curve. Yields drop 1 bp (2-yr) to 3.4 bps (30-yr) today. Peripheral spreads widen marginally in most cases except for Greece, which adds 14 bps. The country toughened restrictions at one border after an increase in coronavirus cases involving tourist traveling to Greece from mostly Balkan countries.

EUR/USD followed intraday sentiment swings. After sniffing around in the 1.126 support area during Asian dealings, the pair staged a technical rebound north as Europe opened. A first test of the 1.13 handle failed but the Gilead news proved the trigger needed for a preliminary break higher. EUR/USD is currently filling bids in the low 1.13 zone. The dollar remained in the defensive overall during the cautiously optimistic mood. The trade-weighted DXY (96.6) retraces some of yesterday’s gains and is again testing the 76.4% Fibonacci retracement support at 96.62. Sterling decided to take a breather after rallying over the past few days. EUR/GBP is going nowhere in the mid 0.89/0.90 area for most of the European session before losing slightly going into US dealings (now trading at 0.894). The British pound failing to really extend gains despite the benign risk environment could be a sign the recent surge went far enough. Investors might also be awaiting some important UK data due next week.

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More Canadians returned to work than expected in June. Net employment grew by a record 952.900 after a modest rise of 289 600 in May. Markets expected job growth at around 700 000. The goods producing sector, including manufacturing and construction, added 158 000 jobs. Services add 794 400 jobs. The unemployment rate declined from 13.7% to 12.3%. At the same time, the participation rate climbed back from 61.4% to 63.8. The Canadian dollar staged an intraday comeback in the run-up to the publication of the data and gained slightly further  afterwards. CAD/USD is drifting back below the 1.36 big figure.

Total orders for Italy’s New BTP future bonds totaled €6.12 bn after a five-day offer period. Investors holding the bonds to maturity will earn a ‘fidelity premium’ tied to Italy’s nominal growth performance over the life of the bonds. The Bond also includes a step-up mechanism for coupons over the life of the bond. The bond was exclusively sold to Italian citizens as the Italian government hoped to mobilize domestic savings to revive the economy post corona.


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