Disappointing Chinese data acted as a chill reminder the economic recovery would likely be bumpy. At the same time, the UK putting countries including France on its quarantine list made crystal clear the pandemic is far from over yet. Except Austria (see below), Spain is also reintroducing some restrictions as the virus risks reemerging. It puts curbs on bars and closes nightclubs again. European stocks tumble some 1.5% lower, weighed down by travel and leisure. July US retail sales showed signs of normalizing somewhat again after surging on post-lockdown pent-up demand. The headline reading disappointed (1.2% m/m) but core measures came in stronger than expected (excl. auto and gas: 1.5% m/m vs. 1%, control group: 1.4% vs. 0.8%). June figures were also revised upwardly. July industrial production (3% m/m) matched estimates. EMU stocks were little affected but US equity futures halved earlier losses on the retail sales report. Cash markets eventually open 0.3% lower. US yields weren’t impressed though. Rates rose a few days straight with investors bracing for heavy (record) supply this week (cf. yesterday’s disappointing 30-yr auction). But the US yield curve bull flattens today amid modest risk-off with the belly outperforming (-2 bps in 5-yr and 10-yr). German yields change barely, losing just 2 bps at the very long end. Peripheral spreads are mixed with Spain and Italy down 2 bps but Greece advancing 2 bps, possibly as geopolitical and -economic risks rise (see below).

• FX markets showed consistency once again. The dollar failed to sustain its tentative upward bias around noon. Even better-than-expected retail sales couldn’t support the greenback, on the contrary even. The mild decline in US yields might have played a role here. EUR/USD temporarily dipped below 1.18 but currently changes hands in the 1.183 area. DXY 93 (trade-weighted dollar) looks vulnerable. Falling below 92.93 would pave the way towards the August low again, which should act as solid support. We see USD also fainting to the Japanese yen, with the latter outperforming amid risk-off. USD/JPY touched 107 several times this week, including this morning, but is once again a tough nut to crack. The pair is currently filling bids at 106.54. Sterling is looking forward to next week’s new round of Brexit negotiations. The British currency strengthens both to the euro as well as to the dollar. EUR/GBP hit 0.90, down from 0.904. Cable rises beyond 1.31, party driven by the weaker USD too.

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News Headlines

Tensions between Greece and Turkey over overlapping claims for energy sources in the eastern Mediterranean risk escalating after warships from either side were involved in a mini-collision in the contested area. Turkish president Erdogan threatened to retaliate against any attack on its vessels it has sent for exploration. The matter is being discussed by EU foreign ministers today.

Austria reported 282 new coronavirus cases today. That’s the highest reading since April. The country is mulling (more) travel warnings again to stem the rise. Austria was one of the first European countries to introduce a strict lockdown policy, effectively bringing down daily cases. The trend started reversing again mid-June, about 2 months after lifting the quarantine measures.


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