It’s modestly better today, but this week in general hasn’t been particularly favorable for riskier assets, to say the least. The Fed (minutes) gave the clearest sign yet the tapering process could start later this year, just as the spread of the coronavirus (Delta) and disappointing Chinese data add to mounting growth worries. Let’s take stock. The EuroStoxx50 swapped a 10-day winning streak for 5 days of consecutive losses, shedding 2% over the week. US stocks performed a bit better thanks to a strong start of the week with new record highs for some indices. They are nevertheless on track to finish 1.5% lower compared to last Friday’s close. Turning to commodities, oil looks at a weekly loss of 7.5%+ with Brent set to close below $66/b for the first time since May. Nickel and copper drop some 6%-ish, for iron we’re talking a stunning 20%. Corporate bond yields/spreads have bottomed back in July already but the move higher accelerated this week, especially in the HY part of the market. Peripheral spreads on the sovereign bond market are more or less stable today after having risen earlier. At the other side of the spectrum, core bonds have enjoyed safe haven flows that brought the German 10y yield, -0.49% today (unch.), briefly to the -0.50% support level. US bond yields attached more weight to the risk-off than the Fed meeting minutes suggesting the taper process could start later this year. For the 10y yield (unch. At 1.23%), 1.20% was (and still is) the technical reference to keep an eye at. For the dollar, it didn’t matter: either markets focused on the upcoming tapering or they traded the risk sentiment theme. EUR/USD breached the 1.17 support yesterday. Follow-through price action today remains limited however, giving the pair a bit of a break going into the weekend. Technically, it doesn’t look too good for EUR/USD, especially with the trade-weighted dollar (DXY) having capped the 93.44 resistance and extending gains to 93.68 today. Next week’s eurozone PMIs probably have to be surprisingly strong to bring EUR/USD some relief. The upside in our view remains fairly limited in the run-up to Jackson Hole next weekend though. The euro does make a fist against the British currency. UK data this week didn’t convince and this morning’s miserable retail sales served as an anticlimax. It raises questions about the Bank of England’s hawkish turn earlier this month. EUR/GBP advances further north to 0.8574.
Belgian consumer confidence dipped from 8 to 5 in August after camping two months at the highest level since January 2001. Details showed that prospects for the economic situation in Belgium (for the next 12 months) deteriorated sharply from 19 to 5. Fear of a rise in unemployment over that same time horizon are still receding (11 to 8). From a personal point of view, households appear to be more pessimistic about their future financial situation (2 to 0). They have also revised downwards their savings intentions from the previous month (23 to 21). The NBB notes that the household confidence indicator has deteriorated to roughly the same extent in both Flanders and Wallonia, despite the severe flooding that hit parts of Wallonia. Confidence held more or less steady in Brussels.
Mainland Norwegian GDP increased by 1.4% Q/Q in Q2, slightly shy of 1.6% consensus. In each of the quarter’s months there was growth, and in June 2021, GDP for mainland Norway was back at about the same level as February 2020, before the pandemic fully reached Norway. Higher vaccination uptake, lower spread of infection and loosening of infection control measures all supported the growth momentum with especially the services industry catching up (1.7% Q/Q). A demand-side break-up shows that the Norwegian consumer was in the driver’s seat with consumption increasing by 3.2% Q/Q. Investments (3.3% Q/Q) and government expenses (1.9% Q/Q) contributed positively as well. Net exports (excl. oil) pulled GDP lower with imports rising faster than exports. The Norwegian krone didn’t respond to the data, but remains in the defensive as oil prices dive deeper (Brent $65/b). EUR/NOK surges past 10.60 and closes in on the YTD high of 10.70.