Today has been a fairly muted session with little news flowing over the screens. Economic data was interesting but as expected left no traces on markets. EMU industrial production continued its rebound in June but less than expected (9.1% m/m vs. 10% expected) and at a slower pace compared to May (12.3%). Industrial production is still down -12.3% on-the-year however. US CPI increased at a pace of 0.6% m/m in July, both core and headline. On a yearly basis, core inflation stands at 1.6% in July (headline 1%). The dire Asian risk environment looked set to continue in Europe but ebbed away during as European dealings developed. Sentiment remained fragile but most EMU stock markets are printing gains of about 0.7%. Gold staged an impressive intraday turnaround after hitting key support at the upward trendline. Core bonds continued to bear steepen but left the lows of the day going into US dealings. USTs marginally underperform the Bund. US yields rise 1.4 bp (5-yr) to 3 bps (30-yr) in the run-up to tonight’s 10y auction. German yields advance up to 2.3 bps (30-yr). Spread changes in the periphery are negligible.

An early attempt by the US dollar to eke out gains after yesterday’s intraday turnaround, failed quite soon. The dollar fails to profit from higher US yields despite the fall in the latter being a key reason for the protracted USD decline over the course of June-July. The trade-weighted greenback slips from 93.66 towards 93.34. EUR/USD nears within striking distance of 1.18 once again, up from 1.174. We saw a similar move developing yesterday. A break didn’t occur back then however and even triggered a technical decline shortly after. USD/JPY briefly hit 107 before retracing some of today’s gains to 106.79. The UK’s Q2 GDP reading came in very ugly. Yet, with a record -20.4% q/q drop the outcome was very close to consensus. Private consumption (-23.1% q/q) as well as capex (-25.5% q/q) bore the brunt of the coronavirus impact. The monthly June data also revealed the bottoming out process is underway. Industrial production and the services sector started to recover from a horrible month March, April and May. Sterling initially traded resilient, probably due to the hopeful June data. However, UK Chancellor Sunak commenting the figures later sounded downbeat, saying that the economy is in hard times and ”many more” will lose jobs in coming months. The pound traded on the backfoot afterwards. EUR/GBP steamed through 0.90 after which a technical acceleration kicked in. The pair is currently changing hands near the 0.905 area. Cable tested the 1.30 but a soft dollar prevents a break lower.

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News Headlines

Headline inflation in Sweden slowed to 0.2% m/m (0.5% y/y) in July, down from 0.6% m/m (0.7% y/y) in June. A key measure stripped for energy prices, however, accelerated to 1.5% y/y (0.4% m/m) in July after printing at 1.3% in June. The Swedish krona strengthened today to EUR/SEK 10.5.

US and Chinese negotiators will probably meet (virtually) this week to discuss progress of the Phase one trade deal. On the agenda are agricultural purchases – which are far behind schedule – and the dollar-yuan exchange rate. However, China is also pushing to put president Trump’s recent ban on two popular apps, owned by Chinese tech champions, which could add to the sensitivity of the talks.


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