This morning’s buoyant risk sentiment in Asia easily spilled over into European and US dealings. The main catalysts for this broad optimism were president Trump’s announcement of mulling tax cut on capital gains and in income taxes as well as declining US Covid-19 hospitalizations. European investors found additional comfort in the much better-than-expected forward looking component of the German ZEW (71.5 vs. 55.8 expected, up from 59.3). The series related to current conditions disappointed however, highlighting the still fragile environment (-81.3 vs. -69.5 expected, down from -80.9). Russia also announced it registered the world’s first coronavirus vaccine (see below). While some pharmaceutical companies warned the approval’s speed could entail risks, the news added to the overall sentiment. Oil rises almost 2% while gold tanks more than 4%. The precious metal again trades below 2 000. EMU stocks rise a solid 2%+. Wall Street opens with gains up to 1.2%. Core bond yield curves bear steepen. US yields rise 1.6 bps (2-yr) to 6.6 bps (30-yr) as momentum built going into US dealings. The US 10y yield forces a break higher through the upper bound of the downward trend channel yet the move needs more confirmation (daily close higher at the minimum) to be technically relevant. German yields advance 1.5 bps (2-yr) to 5.4 bps (30-yr). Peripheral spreads tighten slightly, with Italy outperforming (-3 bps).

In FX, the dollar forfeited some of yesterday’s gains with risk appetite again in full swing. That said, the recent halt in the US yield decline – and today’s rise – at least partially prevents the dollar from sliding even further. The trade-weighted greenback (DXY) declines from 93.6 to 93.45 at the time of writing. USD/JPY barely captures the 106 barrier in a classical risk-on trade (slightly up from 105.96). After a hesitant start, EUR/USD jumped towards the 1.18 area. Several tests occurred but the couple failed to push through. The dollar even clawed back as US dealings started. The move happened in lockstep with the stronger rise in US yields. EUR/USD is currently changing hands in the 1.177 area, slightly up from the opening at around 1.174. UK’s June labour market report eyed disastrous but came in less severe than markets feared with job losses over the three months up until June mounting to 220 000 vs. 300 000 expected. The unemployment rate stabilized at 3.9% while an uptick to 4.2% was expected. Sterling did little. Instead, EUR/GBP was mainly driven by moves in the euro. The couple hit the 0.90 lever but a sustained break did not take place and even retraced most of the gains afterwards to trade close to unchanged at 0.898 eventually. Cable struggles to hold above 1.31.

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News Headlines

Hungarian inflation soared to 3.8% y/y in July, up from 2.9% a month earlier as food prices jumped 7.8% y/y while fuel costs fell less than in May (-4.2% y/y). The Hungarian central bank targets 3% inflation with a 1% point tolerance band on either side. Core inflation excluding indirect taxes, the MNB’s most closely watched measure, even jumped to 4.1% y/y. The central bank slashed policy rates, now at 0.60%, back-to-back in June and July.

Russia registered the world’s first coronavirus vaccine, president Putin announced today, calling it an effective protection against Covid-19. The registration is conditional however, with Phase 3 trials to continue but production allowed to begin.


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