Markets
The core bond rally continued unabatedly yesterday, especially at the very long end of the yield curves. News flow and traded volumes were extremely thin. Core bonds topped off intraday as US stock markets started recovering from a weak open. They eventually gained 0.5%. The German yield curve bull flattened with yields down up to 3.7 bps (30-yr). The US yield curve eventually even bear steepened with yields rising by up to 2 bps (30-yr). The US 30-yr yield earlier set a fresh all time low (1.9%). Italian BTP’s ran the show on peripheral bond markets. The anti-Salvini feeling at center-left PD and anti-establishment party 5SM seems to be strong enough to put aside most differences on other grounds. Italian President Mattarella will today hand former PM Conte a new mandate to go the extra mile and broker a deal between PD and 5SM. EUR/USD, like on Wednesday, lost again a few pips without anybody really noticing. EUR/USD ended the day at 1.1078 from a 1.1090 opening. Sterling fainted after it became clear that UK PM Johnson will try to numb parliament by going for an October showdown. UK MP’s return from Summer recess by September 3rd, but only have until September 12 to try to stop a no-deal Brexit before Westminster closes the doors again until mid-October. EUR/GBP rose from 0.9024 to 0.9071, but reached an intraday high north of 0.91.
Asian stock markets trade flat after overcoming a trade-induced dip. US Treasury Secretary Mnuchin declined to confirm that US-Sino trade talks would happen in September. He added that the US administration didn’t intend to intervene in the dollar market “right now”. Situations could change in the future… The dollar is immune this morning to this warning signal. White House advisor Navarro also sounded pessimistic on prospects of a quick breakthrough. Core bonds slowly move higher. Regional Fed governors Barking and Daly (both non-voters) suggested to be in wait-and-see mode going into the September FOMC meeting. Today’s eco calendar contains EC confidence data, German inflation numbers and the second reading of US Q2 GDP. We expect (EMU) numbers to remain bond friendly. We expect reigning trends on global markets to last. We stressed before that either a lasting improvement in eco data or clarity on future central bank policies (key September meetings) will probably be necessary to provoke a changing tide.
News Headlines
August business confidence in New Zealand dropped to -52.3 from -44.3 in July as the activity outlook, investment and employment intentions and profit expectations fell sharply. The indicator now prints at the lowest level since early 2008. The kiwi dollar slipped to 0.6308 NZD/USD. That is the weakest since 2015.
If it wants Iran to be fully compliant with the 2015 nuclear accord, Europe should have the US to grant sanction waivers for Iranian oil buyers again or provide the country with a credit line, Iranian deputy Foreign Minister Araghchi said yesterday.
Argentina is looking into extending the maturity of some $100 bn debt amid a worsening currency and debt crisis. It will defer about $7 bn repayments of debt maturing in the short term and will ask foreign bondholders to “voluntarily” push out maturities ($50 bn) and will discuss a delay in the repayment schedule on a $56 bn loan granted by the IMF.
