Markets
Core bonds more or less treaded water today. The US Note future lost minor ground going in to the ADP-employment report but quickly erased those losses as the “officious” job report (163k) printed softer than expected (200k). Markets are probably awaiting tomorrows official payrolls, hence a more muted market reaction. The US yield curve remains virtually unchanged compared to yesterday. Today’s track record of the German Bund isn’t that impressive either. Despite a mixed-to-better risk environment, the Bund contract gained slightly resulting in some bull flattening as 10-y yield drops 1bp while the 2-y yield is unchanged. Across the EGB-spectrum, the mild risk climate bodes well for southern bonds with Italian BTP’s extending gains. Greece outperforms (-13bp).
Trading in the major FX cross rates in general and in EUR/USD in particular is in some kind of limbo. There are plenty of stories that in theory have potential to move the dollar or the euro. Regional data, the sage on the US trade policy, emerging markets, Brexit, Italian politics all are able to move EUR/USD. However, currently none of these themes is strong enough to give EUR/USD a clear directional push. Of late, the eco data looked USD supportive. However, today’s ADP was softer than expected and historic low jobless claims also didn’t help the dollar. The US currency even lost a few ticks after the publication of the early morning US data. Have interest rates/interest rate differentials discounted enough USD positive news for now? All kind of issues on geopolitics & trade policy also fail to activate the USD’s safe haven role. Markets apparently want at least part of these event risks to be out of the way before engaging in new directional FX positions. Maybe there is more room of manoeuver once the US/Canada trade talks or ‘issue’ on China tariffs is clarified. Or will tomorrows payrolls do the job? EUR/USD is trading in near 1.1650. Sentiment on Europe apparently isn’t that negative. USD/JPY drifting back south in the 111 big figure.
Today, sterling trading entered calmer waters after some more pronounced swings yesterday and at the end of last week. There were no important eco data or high profile news/headlines on Brexit. Despite yesterday’s headlines that the EU and the UK were making progress to reach a brexit deal, today it became clear that there is still plenty of work to do. In technical trade EUR/GBP hovers in the 0.90 area. Cable is holding in the 1.29 big figure, awaiting ‘new news’.
News Headlines
Sweden’s central bank (Riksbank) left its policy rate unchanged at -0.5% today but tweaked its forward guidance, postponing the timing of a first rate hike yet again from December to “either December of February”. The country faces potentially disruptive elections this weekend, which at least partially explains the Bank’s cautious stance. The Swedish koruna again ceded ground after the Riksbank decision.
Rating agency Moody’s has cut South African growth prospects for 2018 by half from 1.5% to 0.7-1.0% as the country plunged into a recession in the 2nd quarter this year. The poor economic performance adds to the country’s currency issues, with the South African rand suffering severe losses from the recent rout in emerging markets.
Swiss Q2 GDP growth again topped forecasts as was the case in previous quarters. The Swiss economy grew 0.7% Q/Q and 3.4% Y/Y. The Swiss economy proved quite resilient to global trade tensions and to the strength of the Swiss franc as manufacturing and export were big contributors to growth. Q1 growth was upwardly revised to 1.0% Q/Q.
