Yesterday, US and European investors throughout the day gradually decoupled from the negative spill-over effects of the China equity sell-off. This looked promising. However, today the glass of investor sentiment again was half empty rather than half full. While still at lofty levels, European equity indices today are losing 0.5%/1.0%. US losses again remain more modest (0.5%) as investors await the results from several US tech bellwethers after the close. Equity losses after all maybe aren’t that worrisome. However, the price action in the bond markets is still signals deep-rooted doubts and uncertainty. Especially US yields resumed their aggressive flattening trend with yields declining up to 5.0 bp+ for the 10/30 year sector. The US 10-y real yield is further heading into uncharted territory (new all time low at -1.15%). Headline June US durable goods orders were softer than expected at 0.8% M/M. However, taking into account an upward revision for the previous month, core capital goods orders were still OK. This also applies to capital goods shipment data. Looking at this data series, equipment investment still should be a supportive for the Q2 GDP release expected on Thursday. The S&P Corelogic House prices data also showed a faster than expected rise in May. So, the data were no reason for the new spike in uncertainty. Interesting to see whether Fed chair Powell has some insights on this development tomorrow. German/European yields follow the broader trend but de decline is again less aggressive than in the US. The German yield curve also bull flattens with yields declining between 1 bp (2y) and 2.5 bp (30-y). Intra-EMU spreads versus Germany are only little affected by the broader uncertainty (widening 1-2 bp). Also commodities are hardly ceding any ground.
Persistent global uncertainty but at the same time a further sharp decline in US (Real) yields is sending mixed signals for the dollar. EUR/USD initially dropped to the 1.1770 area but in nervous trade jumped back north of 1.18 this afternoon. The yen outperforms, with USD/JPY falling back below 110 (109.90). The DXY USD index eases slightly (92.55 area). Sterling was in good shape of late, but showed no clear directional trend. EUR/GBP to some extent followed the intraday EUR/USD pattern. The pair currently trades little changed in the 0.8550 area.
The National Bank of Hungary (MNB) today raised its policy rate at a faster pace than most in the markets expected. The base rate was lifted from 0.90% to 1.20%. At the same time, the bank also increased the overnight deposit rate from -0.05% to 0.25% and the collateralized loan rate (2.15% from 1.85%), reinforcing its commitment to cap an unexpected sharp rise in inflation. Inflation printed at 0.6% M/M and 5.3% Y/Y in June. The MNB has an inflation target of 3.0% with a tolerance band of +/- 1.0%. The MNB indicated at the time of the first rate hike in June that they started a real rate hike cycle. The forint after today’s rate hike ended recent weakening trend which as such was at risk of adding to inflationary pressures. EUR/HUF is trading near 359,75 compared to 362 early this morning. A negative global risk sentiment maybe prevented a bigger gain.
According to data of the Confederation of British industry (CBI) released today, activity among UK retailers remained strong in July. The measure of reported sales eased only slightly from the peak level in June (23 from 25). The June figure was the highest since August 2018. Growth in orders even accelerated the fastest level since 2010. Even so, sales for the time of the year (~ excluding the impact of the corona lockdowns) were reported as usual (0). Expected sales for August still signal a positive momentum. However, stocks remain at a very low level and this is expected to worsen further, pointing to ongoing supply issues.