Lacking impetus from the economic calendar, the elements that colored the Asian session extended into European and early US dealings. Reports of the state of emergency (Japan) or general lockdowns (Australia) being prolonged came amid a disappointing batch of monthly Chinese data that suggested growth momentum is easing. The main victim of today’s minor risk-off setting are equities. European stocks slide between 0.6 and 1%. The EuroStoxx50 is thus set to snap an impressive 10-day winning streak. Wall Street sheds up to 0.8% (DJI). Core bond yields initially held up well, erasing most or all of earlier safe-haven driven losses. But things took a turn for the worse when the US started joining. The US yield curve now bull flattens with losses mounting up to 4.8 bps (10y). German Bunds return back to their opening highs, sending the yield curve a little less than 2 bps lower at the long end. Peripheral spread changes vs the German 10y yield widen with Italy and Greece (+3 bps) underperforming peers.
The US dollar holds an advantage on FX markets though its performance isn’t very convincing. The UST outperformance perhaps has something to do with it. In any case, the greenback is only marginally strengthening against the likes of the euro and even losing a tad against the British pound. EUR/USD retreats from around 1.18 this morning to 1.178 at the time of writing. Cable (GBP/USD) is meandering around 1.385. The other major sterling cross currency, EUR/GBP, is continuing its battle over the 0.85 big figure. It may take the UK labour market report and/or inflation figures to break the tie. The outperformers today are the Japanese yen and the Swiss Franc. USD/JPY is painting a consecutive large blue candle, bringing the pair back to the low 109(.18) zone vs 110.5 end of last week. EUR/JPY is nearing the July intermediate support at 128.6 after opening as high as 129.71. EUR/CHF slumps sub 1.08 to 1.074, probably adding to the Swiss central bank’s frustration over the “highly valued” franc. Today’s data showed Swiss sight deposits increasing by 1.04 billion francs to 714.6bn in the week ending August 13. These level of increases could well be the result of the central bank intervening on currency markets, like when EUR/CHF was on track to touch 1.07. For the sake of comparison: back in March the pair traded at 1.11; at the height of the pandemic panic the scoreboard showed 1.05.
Polish CPI inflation as measured by the central bank (NBP) accelerated in July. The headline number rose to 5% Y/Y. The NBP’s preferred gauge, CPI net of food and energy prices, rose from 3.5% Y/Y to 3.7% Y/Y (0.4% M/M). Polish core CPI now equals or exceeds the upper fluctuation band (3.5%) for an 18th month running. The Polish zloty didn’t respond to the inflation outcome. EUR/PLN last week approached 4.60 resistance on PLN weakness because of controversial domestic policies. A real test didn’t occur. The pair currently changes hands around 4.5650. A minority of Polish central bankers sees inflation developments as a trigger to start hiking policy rates later year.
The Bulgarian National Statistical Institute published July inflation and labour market data today. CPI inflation accelerated by 0.8% M/M to 3% Y/Y, the highest level since Q1 2020. Details from the monthly number showed especially price rises in recreation and culture (+4.2% M/M), transport and (+2.8% M/M), housing, water, electricity, gas and other fuels (+2.7% Y/Y). The unemployment rate fell to 5%, the lowest level on record with data dating back to January 1996.