US CPI inflation remained at a 13-yr high (5.4% Y/Y) in July after rising by 0.5% on a monthly basis. The data, though still elevated, printed near bang in line with consensus and didn’t provide the longed-for fireworks on financial markets. Meeting the bar proved insufficient to extend the US Treasury sell-off which has been going since the middle of last week and insufficient to push the greenback north of key resistance marks. At least for now that is. More regional Fed governors (Kansas City Fed George & SF Fed Daly) speak out in favor of starting to dial back asset purchases this year. The combination of the August 26-28 Jackson Hole Symposium and the September 22 FOMC meeting might be the perfect platform to launch the blueprint of the normalization scheme. We even see an outside risk that a 2022 rate hike will feature in the Fed’s updated Summary of Economic Projections. In any case, back to yesterday’s market reaction. US Treasuries spiked higher in a muted reaction. The move did gather additional pace after a very strong $41bn 10-yr Note sale by the US Treasury. The auction stopped through the 1:00 PM bid side with an above-average bid cover (2.65) and a huge indirect bid. It might be telling for very short-term momentum that investors are already eager to snap up US T’s after the brief August hick-up in yields. The US yield curve bull steepened in a daily perspective with yields up to 2 bps lower (2-yr). Trading in German Bunds remained lethargic yields shedding 0.2 bps to 0.8 bps in a daily perspective. The belly of the curve marginally outperformed the wings. Today’s eco calendar contains outdated EMU production numbers and US weekly jobless claims. We don’t expect them to leave traces on trading. More of yesterday’s consolidative action might be in the cards. Tonight’s $27bn 30- yr Bond sale which wraps up the US Treasury’s mid-month refinancing operation is a wildcard.
The dollar failed to take out resistance following the CPI print. EUR/USD 1.1704 (YTD low) holds for now with the pair closing at 1.1739 after an intense test. The trade-weighted greenback (DXY) failed to move above the July high (93.19) and eventually ended the day at 92.92. Sterling is still twisting with the 0.8470 support area as last week’s sterling rally (post-BoE) loses dash. This morning’s UK Q2 GDP numbers were in line with consensus (+4.8% Q/Q). Details showed positive contributions from consumption (7.3% Q/Q) and government spending (6.1% Q/Q) while gross fixed capital formation and net exports (exports +3% Q/Q; imports +6.5% Q/Q) declined on a quarterly basis.
The Polish government continues its very controversial legislative track record. The lower the house of parliament yesterday passed a bill which prevents companies from outside the European Economic Area from owning a majority in Polish media companies. The bill is directly aimed at broadcaster TVN which is owned by US media conglomerate Discovery. US Secretary of State Blinken said that the US was deeply troubled and that these pieces of legislation run counter to the principles and values for which modern, democratic states stand. He called on the Polish President not to sign the bill into to law or to refer it to the Polish constitutional tribunal. The parliamentary vote itself was controversial as well with opposing junior coalition partner (Agreement party) pulling the plug on their ruling deal with PiS and the latter sidestepping attempts to delay the vote on the media bill.
The Chinese State Council and the Communist Party’s Central Committee in a joint statement vowed to actively work on greater regulation of large parts of the economy with regard to national security, technology, and monopolies.. The document says that “The people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law. It must be based on the overall situation, take a long-term view, make up for shortcomings, forge ahead, and promote the construction of a government under the rule of law to a new level in the new era.” Specific sectors mentioned for higher law enforcement include food & drugs, big data, and artificial intelligence. Main Chinese equity indices underperform this morning, losing up to 1%.