Markets:
The Bund opened lower today as emerging markets stabilized. The Turkish lira even managed to stage a modest recovery even if the stand-off between the US and Turkey remains and as the central bank refrained from taking additional measures to stabilize markets. The initial market optimism rapidly faded and core bonds entered a narrow sideways range. US Treasuries marginally underperformed. EMU eco data printed mixed and left markets unmoved. The same narrative went for US eco data. Tomorrow’s US eco calendar is more interesting with retail sales, industrial production and the empire manufacturing survey. The US yield curve bear flattens at the time of writing with yields up to 8.2 bps (2-yr) higher. The German yield curve shifts 0.7 bps (30-yr) to 1.1 bp (10-yr) higher. Peripheral yield spreads vs Germany narrow by 4 bps (Portugal/Greece) to 8 bps (Italy). Italian PM Conte, Lega leader Salvini and 5SM leader Di Maio are rumoured to have agreed to hold on to debt-to-GDP reduction path agreed upon with Europe. Discussions on the 2019 budget are ongoing.
The Turkish lira was capable of stabilizing yesterday after the Turkish central bank took some measures to safeguard the financial sector. It prevented EUR/TRY from moving above the 8.00-level. Today this improvement in sentiment continued, with the lira even recovering back to 7.50 after news of a planned conference call in which the finance minister will seek to reassure investors whom are concerned by an increased concentration of Erdogan’s powers and him preventing the central to fight double-digit inflation by hiking interest rates. President Erdogan himself said today Turkey is victim of an economic war and as a response imposed sanctions on US electronic products. EUR/USD stabilized yesterday after the pair dropped to 1.14 in recent days. The NFIB Small Business Optimism printed at 107.9, a record high since September 1983, but couldn’t support the dollar further. EUR/USD is currently oscillating around the 1.14-level. The recent break with the 1.15 support level is from a technical point of view paving the way for a further dollar strengthening to 1.12. The pound gained marginally against the euro after UK labour market data slightly beat market expectations. The unemployment rate dropped to a historic 4.0% and Jobless Claims declined from 9.0k to 6.3k. EUR/GBP is currently trading around 0.892. Investors are looking ahead to the restart of negotiations on brexit this Thursday (Irish border), which probably will have a larger impact on sterling.
News Headlines:
The latest UK labour market report proved to be positive but close to market expectations, with the unemployment rate further declining in June to a historic 4.0% (from 4.2% in May; lowest level since February 1975). Jobless claims in July dropped from 9.0k to 6.2k. Weekly earnings slightly declined to 2.7% Y/Y, coming from an upwardly revised 2.8% Y/Y in May.
Eurozone GDP growth was slightly better in the second quarter than initially thought, with an unexpected upward revision to 0.4% (QoQ, from 0.3%). German ZEW investor confidence bounced back in August to -13.7 for the forward looking expectations component (vs -21.3 forecast) coming from -24.7 in July, but international trade tensions remained a key drag.
The US NFIB Small Business Optimism increased to 107.9 (106.8 expected) from 107.2 in June, and records a high since September ’83. US import prices in July were unchanged from July. US export prices dropped 0.5% in July, mostly due to prices for US farm exports declining by 5.3% (the most since 2011) as the trade war heats up.
