Markets
Today’s trading session was marked by one PMI-related move. National French data were published first and immediately beat forecasts, showing some rebound in June. They triggered profit taking in German Bunds which rallied more or less without uninterruptedly from April, culminating in this week’s dovish Draghi speech. German data at least didn’t deteriorate further and the same was true for the aggregate EMU outcome. After the PMI releases, trading returned to normal with both the Bund and US Note future wavering. European stock markets cede marginal ground while Brent crude extends gains. The German yield curve bear steepens with yields 1.3 bps (2-yr) to 2.7 bps (30-yr) higher. Changes on the US yield curve range between flat (30-yr) and +0.8 bps (5-yr). The US 10-yr yield narrowly trades north of 2.01% key support. 10-yr yield spread changes vs Germany barely move with Italy (-4 bps) outperforming.
EUR/USD started off on soft footing ahead of weak expected EMU PMI’s, which were today’s main and only trading driver. Business confidence in France, Germany and the EMU eventually picked up slightly more than markets anticipated. Important underlying components of the manufacturing index were still in contraction territory but showed signs of bottoming out. Services continue to hold up well. The EUR/USD recovered from its intraday lows after the release and nested back in the 1.13 area although the road to it was bumpy. The couple held on to/extended gains during early US trading hours. EUR/USD is currently changing hands at 1.133. The yen took a breather after yesterday’s surge to the highest level in 5 months. USD/JPY trades near 107.5.
The Bank of England already held its policy meeting yesterday, the Tory leadership race finalists were no big surprise and the UK economic calendar was close to empty today. Yet, markets did not grant sterling a calm trading day ahead of the weekend. The pound faced renewed selling pressure with the EUR/GBP upleg starting during a radio interview with Carney. The Bank of England governor said UK businesses are still unprepared for Brexit and dismissed Tory leader candidate Johnson’s claim that tariffs in case of a no-deal can be avoided. While that’s hardly anything shocking, his comments came a day after the BoE said the risks of such a no-deal have increased. It will be up to UK’s next PM, Johnson or Hunt, to avoid that scenario. Johnson, in pole position to win the race, said before he does not eschew leaving the EU without an agreement. Sterling got the jitters and lost ground vs. the euro and the dollar. EUR/GBP is trading around 0.893 (up from the high 0.88’s). Cable declined from 1.27+ to 1.268 at the time of writing.
News Headlines
A Japanese Treasury official said the country will take appropriate action if excessive moments in the currency market were to occur, adding that exchange volatility isn’t favorable for the economy nor for financial markets. His comments came after the yen strengthened to the strongest level in months.
EMU PMI’s were (slightly) better than markets anticipated. The manufacturing gauge (47.8) still points to economic contraction, but subcomponents such as new orders and employment are showing signs of bottoming out in recent months. The services PMI climbed to 53.4 from 52.9. The 12-month forward looking outlook printed at the weakest level since October 2014 however.
