Markets started the week rather subdued. There was only little guidance from the eco calendar. Instead, investors mulled the stronger-than-expected payrolls report on Friday, president Trump taking fiscal matters into his own hands over the weekend and simmering geopolitical tensions and tit-for-tat action by China against the US. Initially, the latter dampened risk sentiment. European stocks eventually managed to close marginally in the green though. Wall Street ended up to 1.3% higher (DJI) even as stimulus talks between the Republicans and Democrats show little signs of progress. Falling hospitalizations in some US areas also added to the cautious risk return. Core bonds traded mixed. USTS performed an intraday U-turn, extending the bounce after hitting the 0.54% support level as yields advance 0.3 bps (2-yr) to 2 bps (30-yr). The German Bund shed up to 1.7 bps (10-yr). Peripheral spreads remained largely unchanged with the exception of Greece (+ 5 bps). The dollar further recovered from the recent blow even as risk sentiment wasn’t too bad. The gentle rise in US yields were probably the main factor behind the move. The trade-weighted greenback closed at 93.58, up from 93.43 last Friday. EUR/USD’s (poor) attempt to regain 1.18 failed and eventually closed at 1.1738 (down from 1.1787). USD/JPY closed a choppy trade session unchanged near the 106 pivot. Sterling strengthened to the euro in a move that’s partially driven by technical considerations. EUR/GBP slipped through 0.90 to close at 0.898.
Asian markets strike an upbeat tone this morning, putting comfort from the US coronavirus data. President Trump said he’s considering cuts in capital gains taxes and middle income taxes. On China’s retaliatory actions, he added that the US has already responded in many ways. Stocks rise up to 2.5% (Hong Kong, Japan). US Treasuries as well as the German Bund trade a tad softer than yesterday’s close. The Aussie (0.718) and kiwi dollar (0.662) lead the risk move higher on FX markets. The dollar loses marginal ground with EUR/USD trading near 1.175 and the trade-weighted (DXY) near 93.52. USD/JPY clears the 106 hurdle (106.14) for now. A constructive risk sentiment pushes gold back lower towards the (still high) 2000 lever.
There are few eco data releases scheduled for today. Germany’s ZEW is worth nothing but we doubt it’ll be of any significance for trading today. Consensus expects the forward looking component to retreat again slightly after a massive surge over the course of April-June. The current series should continue to bottom out. Overall risk mood remains today’s most important driver though. Equity futures point at a green opening. Provided the current sentiment holds, we expect core bonds to shed some ground but see little reason for the moves to be outspoken in the run-up to Friday’s important US retail sales. EUR/USD in theory might profit but the tentative halt in US yield declines might provide a bottom for the dollar, especially after its recent slide. EUR/USD 1.1822 acts as a first resistance. Sterling investors are currently digesting the June labour report, which came in stronger than expected. The impact on the pound remains limited however with EUR/GBP hovering near opening levels of 0.898 and will probably subject to technical and sentiment driven trading motives.
The Bank of England will step up its quantitative easing should the economy slow and markets shake again, MPC member Ramsden told in an interview. He added that there is no limit on how much debt could be bought.
The government of Lebanon resigned on Monday after intensifying anger among Lebanese people towards their leaders whom are blamed for last week’s explosion at Beirut’s port.