Market movers today
Markets will continue to focus on the trade war and whether it escalates further.
Today is another quiet day in terms of economic data releases. This morning at 08:00 CEST, German industrial production for June is due out, which will be interesting given the recent weakness in German PMIs.
In Sweden at 09:30 CEST, we get budget data for July.
Selected market news
The US treasury curve 2-10y continued to flatten yesterday and is now just 11.5bp from inverting, which historically has been a reliable indicator of a forthcoming recession in the US. The flattening gained momentum after Fed’s Bullard – normally one of the most dovish members of the Fed – said that the Fed has already reacted to trade uncertainty and that the Fed should not react to short-term stock moves and day-to-day trade negotiations. The latter should not surprise anyone, but it still underlines that if some investors thought that Powell would issue a ‘Powell put’ they might be wrong.
That said, Bullard did underline that he would not rule out further policy changes ahead and that trade uncertainties would chill global investments and growth. However, all in all Bullard came across relatively ‘hawkish’ given his dovish reputation.
Despite the ‘hawkish’ comments from Bullard and the flattening of the yield curve we did see a stabilisation in the US equity market with major indices rising up to 1%. The decision by China to not let the yuan weaken further helped to calm the US market, as investors hoped for more stability ahead. It also helped that China according to Bloomberg reassured a number of foreign exporters that the yuan would not continue to weaken and that there would be no capital control. White House economic advisor Larry Kudlow also reassured that the US remains committed to trade negotiations with China next month as planned. Kudlow also said that the US ‘would take a careful look at whether China took measures to reverse the decline of the yuan… [and] that things could change in respect of tariffs’. It seems that the US is backtracking a little after the ‘currency manipulator’ label earlier this week.
However, Asian markets did not buy into the positive Kudlow spin. Most markets are once again lower and 10Y Treasury yields have been trading as low as 1.66% overnight. This morning China fixed its daily reference rate at 6.9996, just marginally stronger than 7 that by many is seen as a key level. Analysts argue that a fix above 7 would be interpreted as accept of further depreciation from People’s Bank of China.
The global monetary easing continues and overnight New Zealand slashed rates by 50bp to 1% and opened the door for negative rates. The move was more aggressive than expected and the NZD has fallen more than 2%. The AUD is under pressure as well, down more than 1%. India is also expected to cut rates this morning. In our local markets both NOK and SEK are weaker this morning after some support was seen yesterday.
