Market movers today
Today, the two-day European Council meeting starts. Several topics will be in focus: migration, Brexit, security and eurozone reforms are on the agenda (European Council Agenda Highlights). Migration will be one of the hottest topics, especially following the pressure on Merkel from her CSU coalition partner to find an EU-wide solution to migration problems. We will also closely follow what stance the new Italian government will take on the topics. We are likely to see a very split EU, where only France’s Macron seems to be a strong advocate for closer EU cooperation in terms of economics, security and migration. Trade will also be discussed in light of recent global and growing trade tensions. The European Council is expected to underline the importance of the multilateral rules-based system, call for improvements to the functioning of the World Trade Organisation and emphasise the EU’s positive trade agenda.
In terms of Brexit, the summit has become less important as the clashes between the EU and UK are likely to be postponed to the October EU summit. However, Brexit remains a key driver for the pound and thus very sensitive to Brexit-related comments from the Summit.
The German flash inflation print for June is due to be released, which together with similar releases in Italy and Spain may be an important gauge for the eurozone inflation release tomorrow. The market is expecting inflation to fall back modestly in Germany from 2.2% in May to 2.1% in June, due primarily to base effects.
Selected market news
Retail sales in Japan covering May published overnight disappointed consensus. Retail sales grew 0.6% y/y down from 1.5% y/y in April and below the consensus estimate of 1.2% y/y.
The Reserve Bank of New Zealand kept its key policy rate unchanged at 1.75% at its meeting overnight. It further struck a somewhat dovish tone by noting that it is well positioned to manage a change in the policy rate both up and down.
The Chinese Ministry of Commerce commented on recent protectionist measures from the US overnight, saying it is becoming a major drag on global investment and that China is in cooperation with the EU on market access. The Chinese equity market stabilised overnight following significant underperformance over the past couple of weeks.
Oil prices continued to rise yesterday, shrugging off sour risk sentiment and a stronger dollar. Tighter supply remains a focal point for the market. Yesterday, the market reacted partly to the weekly EIA inventory report, which showed a large draw on inventories. The price on Brent crude briefly touched USD78/bbl – the highest level in a month.
The US 10Y government bond yield continued to drop yesterday, falling to 2.83% and down about 16bp since the start of the month.
