Markets:
Global core bonds eked out some gains today. The move occurred from the start of US trading. Volumes were extremely thin with the eco/event calendar empty apart from tonight’s speech by Atlanta Fed governor Bostic. The voting FOMC member has a rather neutral stance. Talking in favour of two more rate hikes this year could offer some counterweight to current moves. While stock markets perform well today, some of the core bond flows could nevertheless be related to new minor selling pressure in the likes of TRY (two downgrades over the weekend) or BRL. The US yield curve bull flattens at the time of writing with yields declining by 1 bp (2-yr) to 2.9 bps (30-yr). The German curve flattens as well with yield changes ranging between +0.5 bps (2-yr) and -0.7 bps (5-yr). 10-yr yield spread changes vs Germany narrow up to 4 bps (Portugal & Spain).
Due to lack of data, dollar trading largely traced back to technical considerations. Initially, the dollar possibly profited from investors’ renewed hope in the midlevel trade talks between the US and China taking place this Wednesday. The Turkish lira (and other EM currencies) remain in the defensive, perhaps supporting the dollar also via safe haven flows, despite American and European stocks suggesting a moderate risk on environment. Fortunes changed in the early afternoon as the greenback lost most of the intraday gains. We didn’t identify any specific triggers for this turnaround. Instead, US markets entering the trading arena on a typical low volume Summer day might be the most important instigator. At the time of writing, EUR/USD is changing hands around 1.1430, only marginally lower than Friday’s close. USD/JPY initially edged higher before trading back lower at 110.40.
EUR/GBP traded with a negative bias today as the currency pair slipped throughout the day, failing to hold on to Friday’s gains. In absence of any relevant market data or meaningful brexit headlines, EUR/GBP mimicked to some extend its dollar counterpart. Investors probably await tomorrow’s revival of the brexit talks between Brexit minister Raab and EU’s chief negotiator Barnier before placing any bets. EUR/GBP currently trades around 0.895 (-0.30%). Cable gains (currently at 1.2775) as the dollar lost steam this afternoon.
News Headlines:
China’s state-backed funds, or the so-called national team, purchased blue-chip stocks at the end of today’s Asian session to support the A-share market. They bought shares with the aim to stabilize the market, not to push up stock prices. The China Securities Regulatory Commission didn’t respond to questions on the matter (Bloomberg).
After Germany’s economy expanded faster than expected in Q2, the economic growth should remain on a solid growth path in Q3, according to the Bundesbank. The industry would only add little to the growth. Instead, private consumption would be the main driver of the expansion.
A diverse set of US businesses have warned that the new tariffs on $200bn of Chinese import will raise the price of day-to-day products for households. Unlike former US tariffs, who target Chinese industrial machinery and other intermediate goods, the new tariffs could directly hit thousands of consumer products.
