- EMU equities are modestly higher, with Italian and Spanish bourses outperforming, as investors take comfort from yesterday’s price action on WS. US equities open little changed.
- UK Q2 GDP growth was confirmed at 0.3% Q/Q and 1.7% Y/Y. However, the details painted a poorer picture. Indeed, consumption barely grew (0.1% Q/Q) as high inflation limits the spending capacity of households. It was partly offset by strong government and capital spending. However, the former is untenable given budget constraints. The latter was due to government and housing investment, as business investment was flat.
- UK retailers this month reported their worst month of growth since the Brexit vote, according to a CBI survey, a negative sign for the economy. CBI retailing reported sales index fell to -10 in August from 22 in July. It compares to expectations for a more modest decline to 14.
- INSEE reported that French business confidence continued to improve in August to reach its highest level since April 2011, underscoring recent upbeat data in the eurozone’s second largest economy.
- Norway’s "mainland" economy, which excludes oil, gas and transport, expanded by 0.7 Q/Q in Q2, while Q1 figures were also revised upwards from 0.6 % Q/Q to 0.7% Q/Q. Statistics Norway said it represents a "moderate economic upturn" after two and a half years of "weak growth". NOK surged, pushing EUR/NOK to the key 9.2521 support.
- European markets traded quiet ahead of the start of Jackson Hole with bond investors making their positions more neutral from dovish. That resulted in modestly higher yields. The dollar was slightly stronger versus yen and euro.
- Kansas Fed George said if U.S. data hold up, there will be an opportunity to raise interest rates again in 2017. She admitted that eco models of how inflation responds to low unemployment may have broken down, but "whether we hit 2 percent on the nose is less important to me than understanding how the economy is doing more generally."
- Hungary’s central bank doubled down on its pledge to consider more unconventional easing, moving closer to further action to stem a currency rally. The forint retreated from a two-year high. EUR/HUF rose to 304.55 from 302.
- Dallas Fed Kaplan repeated that he wants to be patient on a rate hike and prefers to wait for more information amongst other about how inflation evolves. He also repeated that the balance sheet tapering should start soon.
Rates
Core bonds lose marginal ground ahead of JH
Core bonds traded with a slight negative bias as the risk sentiment improved, following Trump-related market upheaval on Wednesday. Some more neutral positioning ahead of the Jackson Hole jamboree of the world’s top central bankers may have played a role too. However, German bonds are little changed, while US Treasuries are modestly lower. At the time of writing, US yields are up 1.7 to 2.4 bps, the belly of the curve underperforming. Yield changes in the German curve were minimal (less than 1 bp lower).
French business confidence (INSEE survey) confirmed the upbeat mood of corporates, while Belgian business confidence disappointed and US initial claims in line with expectations. All releases were ignored and thus disregarded.
Calmness on the intra-EMU market returned after a widening of the peripheral yield spreads in the past two days. Yield spreads were nearly unchanged. The better risk sentiment played a role, which is also documented by the outperformance of the Milan and Madrid bourses.
Currencies
USD paralyzed ahead of Jackson Hole
The dollar was little changed against the euro and regained marginally ground against the yen as the negative impact from Tuesday’s comments of president Trump faded. Even so, price moves remained limited. It was all marking time ahead of tomorrow’s Jackson Hole speeches. EUR/USD holds near the 1.18 pivot. USD/JPY is trading a touch higher around 109.30/40.
Overnight, Asian equities mostly showed modest gains with Japan and China being the exception. ECB’s Hansen, a hawk, wasn’t overly worried about recent euro strength, but his comments didn’t cause any further euro gains. EUR/USD stabilized in the 1.18 area. USD/JPY held in the low 109 area. So, the 108.60 ST correction low ‘survived’ the unconventional Trump comments.
European markets enjoyed a cautious risk-on environment. The comments from US president Trump on Nafta and on a government shutdown moved gradually to the background. There were only second tier eco data in Europe. Core bond yields rose marginally, equities rebounded and the dollar was slightly better bid. EUR/USD drifted (temporary) below 1.18. USD/JPY rebounded a bit further from the 109 barrier. However, all moves developed within recent tight ranges. Changes in interest rate differentials were too small to guide for FX trading.
No change of script for global trading in the US session. EUR/USD reversed the morning ‘gain’ and returned to the 1.18 area. We didn’t seen a specific reason.US weekly jobless claims were in line with expectations and evidently couldn’t affect the dollar ahead of tomorrow’s Jackson Hole speeches. EUR/USD is trading just below 1.18. USD/JPY is changing hands around 109.30/40.
Sterling decline takes a breather despite poor data
Today, the longstanding decline of sterling (against the euro) finally took a breather. EUR/GBP came slightly off the recent top around 0.9235. Cable returned north of 1.28. The UK data couldn’t explain the pause in the sterling decline, as the UK data disappointed (see headlines for details). There was no high profile news from the Brexit negotiations. Immigration data indicated that net migration to the UK fell significantly in the year to March. Whatever, the market apparently found itself a bit too much sterling short and needed some corrective action. EUR/GBP trades currently in the 0.92 area. Cable is changing hands in the 1.2820 area. Today’s move didn’t change the global technical picture for the UK currency though.
