Markets
Global core bonds lost slightly more ground today. Markets reacted stoical to US President Trump’s new tariffs on Chinese goods. The move was largely discounted and investors perhaps think of it as the US’s final move against China. US Treasuries underperform German Bunds with the US 10-yr yield and 30-yr yields again testing first resistance around respectively 3% and 3.15%. Today’s session was poor from an eco/event point of view. Brent crude prices increased from $77.5/barrel to $79/barrel on reports that Saudi Arabia is comfortable with oil prices above $80/barrel. The US yield curve bear steepens with yields 0.5 bps (2-yr) to 3 bps (30-yr) higher. German yields add 0.5 bps (2-yr) to 1.2 bps (30-yr). 10-yr yield spread changes vs Germany are narrowly mixed with Greece underperforming (+7 bps) and Italy outperforming (-3 bps).
Today, USD traders didn’t know which card to play after the US decision to impose a 10% tariff on an additional $200bn of Chinese imports. The reaction on Asian (equity and FX) markets was modest. The dollar hardly gained any ground on this ‘escalation’ in conflict. Early in European dealings EUR/USD even tried to continue yesterday’s intraday rebound. The pair came close to close to Monday’s top, but a real test of the 1.1733 resistance again didn’t occur. A remarkable rally of European equities at the start of the session also did run into resistance. Markets awaited more indications on the nature of Chinese retaliation and also looked forward to the market reaction in the US. EUR/USD settled again in a tight range in the high 1.16 area. US equity futures/equities show a similar cautious/moderate trading pattern. The dollar came slightly under pressure again this afternoon. EUR/USD is again testing this week’s top (1.1720 area). USD/JPY still hovers near the 112 pivot. So, relative USD softness and comparable tentative euro resilience continues today.
There were no important data in the UK today and there was also no important news from Brexit. The internal debate within the UKL conservative party on what kind of Brexit the party/the country should aim for, continues. However, there were really no elements today. Markets look forward to the informal EU summit in Salzburg tomorrow and on Thursday. EUR/GBP traded with a slight upward bias (currently 0.89 area).
News Headlines
Italy’s Deputy PM Di Maio, from the ruling 5-Star Movement party, said Italy’s Economy Minister Giovanni Tria could be fired if he refuses to get on board with the plan to provide basic income for the poor. Tria, on his part, repeated that Italy will obey the 3%-rule stated by EU law and aims to address the country’s social needs.
UK Brexit minister Raab said that he rejects EU negotiator Michel Barnier’s proposal for the Irish border. Barnier stated that the EU saw technical checks on board vessels or in ports outside Ireland as a possible solution. Raab now said that this is not an option and repeated that the UK is sticking to its plans for a post-Brexit border.
The Chinese commerce ministry made a statement today that China will retaliate after the US announced it will impose 10% tariffs on $200bn of imports from China. It filed an official complaint with the WTO and will impose tariffs on $60bn of US imports that range between 5% and 10%. They’ll be effective on Sept. 24 as well.
