With few important eco data on the agenda, trading on European markets was mainly order- and sentiment driven. Asian equities mostly ignored a rather downbeat session in the US yesterday evening, with China outperforming. However, the relative optimism from Chinese/Asian markets couldn’t be copied in Europe. There was no high profile, dominant story on European markets. However, (sharply) rising numbers of confirmed Covid-19 cases in several countries are a persistent source of uncertainty, questioning the pace of the recovery going forward. It caused investors to hold a rather cautious bias going into the weekend. European equities are losing between 0.5% and 1.5%. US indices show a diffuse picture with the Nasdaq slightly outperforming. Investor caution also filters through into core bond markets. The US yields are declining marginally (about 1bp). In this respect, the US 10-y yields has more or less returned to Wednesday morning’s levels, reversing the post-Fed uptick. German yields are showing in a similar picture, easing about 1 bp across the curve. 10-y intra-EMU spreads versus Germany are mostly changing less than 1 bp.

Given moderate moves in other markets, there was no big directional driver for USD trading either. The trade-weighted dollar (DXY) hovered in a tight range in the upper part of the 92 big figure (currently 92.90 area). However, there was a slight differentiation between different cross rates. In line with recent price action, the yen again shows some signs of live. USD/JPY (104.40 area) is coming ever closer to 104.19 end June correction low. The picture in EUR/USD (1.1840) was more neutral to tentatively south. EUR/JPY (123.60 area) is also holding near recent correction low. Interesting to see whether a downside break in USD/JPY (if it were to happen) would be the harbinger of further global  USD losses. Or will there be additional downward pressure on EUR/JPY (and maybe to a lesser extent on EUR/USD) with the yen further resuming its role as safe haven?

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Sterling also entered calmer waters after volatile intraday swings yesterday. EUR/GBP held a rather tight sideways range close to but mostly slightly below the 0.9150 handle. UK yields declined 1-2 bp as the debate on negative UK policy rates continues after the BoE indicated it is stepping up operational preparations to facilitate such a move in the future (if necessary). In line with recent data, UK August retail sales were constructive/close to expectations, but largely ignored. The BoE yesterday already indicated that decent eco data over the previous month are maybe not such a good pointer for the next episode in the Covid-19 recovery. EUR/GBP is trading in the 0.9135 area. Cable is changing hands at around 1.2965.

News Headlines

The Russian central bank kept rates unchanged at 4.25% today due to signs of quickening price growth. Stronger-than-expected inflation was fueled by both increased demand as lockdowns ended and a significant weakening of the rubble. Investors shed the currency, fearing international sanctions after Russia allegedly poisoned opposition leader Navalny.Rate cuts are still possible however, the central bank added, citing the slowing pace of the recovery.

Poland’s ruling coalition teeters on the brick of collapsing. Members of the Law and Justice (PiS) party declared it was prepared to form a minority government and call elections after just one year in the saddle. The clash is rooted in a longstanding internal power struggle but culminated after the PiS’ junior coalition partner said it would oppose two key bills. The Polish zloty trades a tad lower (EUR/PLN 4.458) but remains more broadly in consolidation mode.


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