Markets
Global core bonds trade marginally lower today in an uninspiring, low volume trading session. Sentiment is gradually turning negative. Losses are mostly technically inspired in the Bund, following Friday’s bearish engulfing pattern. The US Note future heads to the lower bound of the July sideways trading range (119-30 to 119-27+). The calendar heats up later this week with EMU PMI’s (tomorrow), the US Treasury’s end-of-month refinancing operation, ECB meeting (Thursday) and US Q2 GDP release (Friday). The German yield curve shifts 0.4 bps (2-yr) to 1.9 bps (10-yr) higher. The US yield curve bear steepens with yield changes ranging between +0.9 bps (2-yr) to +2.2 bps (30-yr). 10-yr yield spread changes vs Germany range between -5 bps (Portugal) and +3 bps (Spain). The Belgian debt agency tapped 4 bonds today: OLO 82 (€0.7bn 0.5% Oct2024), OLO 85 (€1.1bn 0.8% Jun2028), OLO 84 (€1.2bn 1.45% Jun2037) and OLO 80 (€0.6bn 2.15% Jun2066). The combined amount sold was the maximum of the targeted €3.1-3.6bn. The total auction bid cover was 2, but demand was especially strong for the two shorted-dated OLO’s. The Belgian debt agency already raised 85% (€26.28bn) of this year’s €31bn OLO funding need.
Today, the dollar failed to develop a clear directional trend. Last week’s decline of the (trade-weighted) USD bottomed, but there was not one, unequivocal new driver. This morning, USD/JPY dropped (temporarily?) below 111, but this move was mainly yen strength on rumours that the BOJ could change the implementation of its policy. This change could de facto lead to higher yields, supporting the yen. The USD/JPY decline slowed later in the session. At the same time, EUR/USD also eased after the ‘Trump-driven’ decline of last week. Uncertainty on the trade conflict between the US and China, but also between the US and the EU remains high. In this respect, it remains highly uncertain whether this week’s meeting between US president Trump EC president Juncker will turn out favourable for the dollar rather than for the euro. A failure to find a solution on the key automobile tariffs could be a negative fort the euro rather than for the dollar. Markets also doubt that this week’s ECB meeting will yield much support for the euro. To summarize, last week’s call from US president Trump for a weaker dollar has apparently been working out for now. From here next steps in trade war sage remain highly uncertain, leaving USD traders in some kind of no-man’s-land. EUR/USD is trading in the 1.1715 area. USD/JPY struggles not to fall back below the 111 area.
There was also little news to guide sterling trading today. At a meeting with its German counterpart, new UK foreign Secretary Hunt said that there is a real risk of no Brexit deal. To avoid such a scenario he expects the EU to do concessions first. The meeting only illustrates that the UK and the EU are still far away from a detailed Brexit deal. However, the headlines didn’t hurt sterling after last week’s decline. The UK currency even regained slightly ground. EUR/GBP trades currently in the 0.8915/20 area. Cable trades in the 1.3135 area. This evening, BoE’s Broadbent will speak in London. Markets will look out whether he supports the case for an August rate hike.
News Headlines
New British foreign secretary Jeremy Hunt has stated that “there is a very real risk of the UK crashing out of the EU without a deal” in March next year. These comments feed further desire for both parties, as well as companies, to work on contingency planning for a no-deal scenario.
Brent crude oil gained around 1% today to test $74 a barrel after a three-week slump. Reason is US President Trump’s warning at the address of Iran that they would suffer consequences if it kept threatening the US. Iranian president Rouhani earlier warned the US of a potential confrontation between Washington and Tehran.
The European Commission has said that EC President Jean-Claude Juncker will not bring a specific trade offer to the table in Washington on Wednesday. The purpose of the meeting is “to stay engaged in dialogue”. The comments were released after Trump’s top economic adviser, Kudlow, said to be expecting a ‘significant’ trade offer.
