Markets:
Friday’s violent repositioning following Trump’s response to China retaliatory measures rolled over into Asian dealings today. However, while still having closed in red, most of the Asian equity indices recouped some of the earlier losses after Trump said he received two calls from China. According to the US President, China wants to restart talks which renewed trade hopes. The latter’s Foreign Ministry spokesman Geng Shuang later said he wasn’t aware such calls took place. Markets react positively on the news nonetheless, discarding a disappointing German IFO-indicator (declined to 94.3) and mixed US durable goods orders (see below). Trade remains the overarching investor theme for the time being. European stocks rise about 0.5%, US stocks add some 1%. US interest rates bounced from intraday (and multiyear) lows with the yield curve eventually trading close to unchanged vs. Friday’s close. The German curve bear steepens with yields advancing 1 bp (2-yr) to 1.5 bps (10-yr). Peripheral spreads change only marginally (-1 bps). EUR/USD reversed some of Friday’s gains (which were caused by a weaker dollar). The couple is now changing hands around 1.112 vs. mid 1.11’s at opening. USD/JPY attempts to resettle above 106 after testing the 2018/2019 lows.
Sterling trading stayed subdued and under low volumes today as UK markets were closed for Summer Bank Holiday. EUR/GBP traded within a narrow 0.906-0.91 trading range. The EU threatening not to start talks about the UK/EU trade relationship after Brexit had no significant impact on trading. Markets are counting down to the end of Parliamentary recess next week.
News Headlines:
German IFO Business Climate deteriorated further in August. The headline index fell from 95.8 to 94.3 (vs 95.1 consensus). The IFO is on a downward path since September last year, apart from a small rebound in March. The index is now at its softest level since November 2012. Both subcomponent, current assessment (97.3 from 99.6) and expectations (91.3 from 92.1) declined. It’s the most pessimistic outlook since mid-2009. The July and August IFO readings suggest that the Q2 contraction (-0.1% Q/Q) will deepen further in Q3, putting the country in a (technical) recession.
Headline US durable goods orders rose by 2.1% M/M in July, buoyed by a surge in civilian aircraft orders (+47.8% thanks to Boeing orders). Core durable goods orders dropped by 0.4% M/M. Shipments of non-defense capital goods excluding aircraft, which is used in GDP calculations, fell by 0.7% M/M which is the most since October 2016. It suggests that nonresidential investment, which weighed on the economy in Q2, might remain weak.
Greek PM Mitsotakis announced that the Bank of Greece and European authorities agreed that the latest capital controls could be lifted from September 1. Athens imposed capital controls in June 2015. Some measures, like caps on the amount of cash withdrawals were already undone. The final measures include limits on money transfers abroad. With capital controls becoming a thing of the past, Greece hopes to restore its investment grade rating.
