Markets:
With the crisis in emerging markets, and especially Turkey, cooling somewhat down, news emerged from the ongoing trade war between the US and China. Chinese authorities announced they will accept an offer made by the United States to send a Chinese delegation to Washington at the end of August to restart informal discussions on possible solutions for their trade dispute. Since the tariff war peaked in June, both countries had not had any official discussions. A sigh of relief penetrated financial markets and pushed investors into a more risk-on mode at the cost of the safe havens. European markets opened in green and were able to hold on to those gains throughout the day. US markets continued that trend, with the Dow Jones even gaining more than 1% at opening. EUR/USD gained some ground on the news and rose 35bp to 1.1385, but stabilized afterwards around 1.1370-1.1380. Later on the day, US data could not initiate a new currency move. Strong retail sales in the UK, 0.7% increase in July against a 0.5% decrease in June, couldn’t support sterling. With no real news on the restart of brexit negotiations today, the pair remained around 0.895.
Global core bonds lost ground overnight (US Note future) or in today’s market opening (Bund) on the headline that China and the US will revamp trade talks at the end of the month.. Risk sentiment slightly improved in globo, with the sell-off in the likes of BRL and ZAR slowing. However, the moves don’t go that far and core bonds even recouped some territory intraday. Traded volumes remain very low. The US Note future received a small additional push in the back following mixed to weaker US eco data. The US yield curve flattens slightly at the time of writing with yield changes ranging between +0.4 bps (2-yr) and -0.4 bps (30-yr). The German curve shifts in similar fashion. The 2-yr yield adds 0.6 bps, while the 30-yr yields loses 0.2 bps. The EMU eco calendar was empty. On intra-EMU bonds markets, 10-yr yield spreads vs Germany narrow up to 4 bps (Italy) with Greece underperforming (+6 bps).
News Headlines:
China is taking measures to ease pressure on its yuan by preventing commercial banks from using interbank accounts to deposit or lend yuan offshore. In addition, the country nearly quadrupled its fixed-asset investment projects in July in an attempt to stabilize its cooling economy.
Credit rating agency Fitch has downgraded its expectations of an orderly transition deal between the UK and the EU. Since the UK voted in 2016 to leave the EU, the rating agency kept a smooth transition as the most likely outcome but has thus changed that view today. “The wide range of possible outcomes means that no individual scenario has a high probability anymore”.
Norges Bank has kept its policy rate unchanged at 0.5%. Norway’s economic conditions hardly changed since June. The central bank expects growth this year at 2.3%. Inflation unexpectedly rose in July (1.4% YoY core inflation) and the bank said price pressures are growing, keeping the planned rate hike for September very likely.
US jobless claims declined for a second week in a row to 212k last week, while 215k was expected. Housing starts rose 0.9% in July, while a 7.4% increase was expected. The Philadelphia Fed Business Outlook disappointed with 11.9 this month (22.0 expected), but its future outlook remains solid at 38.8.
