Markets
Risk sentiment turned positive during Asian trading yesterday on news that China and the US will restart trade talks next week. Asian equity gains spilled to Europe (+0.5%) and the US (+0.8% with Dow outperforming). Moves on other markets were much smaller with traded volumes being extremely low. Core bonds started on a weak footing, before regaining losses during European trading. Wall Street’s strong performance eventually sent the Bund and US Note future back south. Changes on the German yield curve ranged between +1.1 bp and +1.6 bps with the belly of the curve underperforming the wings. The US yield curve flattened with yield changes varying between +0.8 bps (2yr) and -0.6 bps (30-yr). 10-yr yield spreads changes vs Germany on intra-EMU bond markets narrowed up to 2 bps with Italy outperforming (-7 bps) and Greece underperforming (+4 bps). The sell-off in EM currencies stopped yesterday, but they failed to stage a comeback. Both USD/JPY and EUR/USD ended the marginally higher, respectively at 110.90 from 110.46 and at 1.1377 from 1.1345. EUR/USD briefly tried to regain the 1.14 handle intraday after the strong US stock market opening. Mixed to disappointing US eco data hardly impacted trading yesterday. Sterling remained in the defensive in the run-up to brexit-talks between the EU and the UK. EUR/GBP closed at 0.8946 compared to a 0.8935 opening.
Summer trading conditions are expected to remain News Headlines in place today. The eco calendar is empty apart from August Michigan consumer confidence and final EMU CPI data. None of them will probably leave a trace on markets. Overnight trading suggest a slow start to the day with most Asian bourses recording small gains (apart from China) and the US Note future & USD/JPY oscillating near yesterday’s closing levels. We have no strong view for today. Investors will gradually start eying Fed Chair Powell’s speech on the economy and monetary policy in Jackson Hole next week (August 24). From a technical point of view, the German 10-yr yield is near the bottom of the 0.3%-0.5% sideways range which we deem strong support. The US 10-yr yield is comfortably near the middle of the 2.8%-3% range. EUR/USD remains in the defensive following the break below 1.1510 which paves the way for a further decline towards 1.1187. Sterling suffers with the brexit-clock ticking in the queen’s money’s disadvantage. A first test of EUR/GBP 0.9031 resistance failed last week. Brexit-talks continue in Brussels today.
News Headlines
German Chancellor Angela Merkel is set to meet Russian President Vladimir Putin tomorrow, near Berlin. They will discuss the ongoing conflicts in Syria, Ukraine and differences on the Nord Stream 2 pipeline. A meeting with one of his major critics is a breakthrough for Putin while Merkel needs to reassert her leadership role in Europe.
Valdis Dombrovskis, the European Commission financial services chief, has warned that the EU’s goal for creating a markets union by 2019 might not be reached. He said that because of governments lagging in approving the necessary laws, the EU’s flagship project to boost private sector investment in business is in jeopardy.
Reserve Bank of Australia Governor Philip Lowe said in a semiannual testimony in parliament that the bank is likely to hold rates steady for “a while yet”. He stated that the bank’s targets of full employment and an inflation rate within the target rate on a sustained basis should be more clearly in sight before the bank will change the current monetary policy stance.
US Secretary of Treasury Steven Mnuchin has threatened Turkey to introduce more sanctions if President Erdogan refuses the release of the American pastor, escalating the diplomatic spat that has spread to global markets. The US already put sanctions on several of the Cabinet members.
