Markets:
Markets close August on a bullish note. China hinting pressing the pause button in the recent trade war escalation yesterday continued to dominate trading today. That’s probably in part due to lack of other drivers though because both EMU (inflation, unemployment) and US (personal income/spending, PCE deflator) data came in (very) close to expectations. The constructive risk climate especially benefitted stocks with European stocks adding up to more than 1%. US stocks open 0.5% higher. Core bonds traded a more choppy pattern however with the German Bund outperforming US Treasuries. US yields at the moment add about 1.3 bps (2-yr) to 2.8 bps (10-yr). The German yield curve shifts further south despite a bullish sentiment. Yields decline about 1.6 bps (2-yr) to 2 bps (10-yr). The aggressive peripheral spread narrowing takes a breather today. Italy still narrows 1 bps though even as final GDP data showed the economy contracted -0.1% QoQ (vs. 0.0% according to the preliminary figure). Greece underperforms (+5 bps). Both Italian and Greek spreads have decreased an impressive 30 bps this week! The story for EUR/USD earlier this week didn’t change today. The couple held a downward bias, eying first support around 1.1027. A test didn’t occur however. EUR/USD is currently trading at 1.104 (vs. 1.106 at opening). USD/JPY loses some ground but holds above 106.
The pound traded little inspired today. A Scottish Judge ruling in favour of Johnson regarding the PM’s plan to prorogue Parliament had no material, and in any case lasting, impact on sterling. The British pound in fact grinded higher during a mostly technical trading session. Markets await the Parliamentary debate to restart September 3. Meanwhile, the EU and UK agreed to intensify the negotiations and will hold talks at least twice a week through September. EUR/GBP edged down from 0.908 to 0.906 currently. Cable (1.218) is changing hands at levels close to opening.
News Headlines:
ECB Executive Board member Lautenschlaeger echoed comments by ECB Knot yesterday. In an interview with MNI, she argued that now it’s not the time to restart asset purchases. QE should only be used if you have a deflation risk and that’s not the case right now. In a slight hint to potential action in September, she said that rate cuts are part of the standard monetary policy tools which should be considered before the unconventional ones. August inflation numbers show that both headline (1.0% Y/Y) and core (0.9% Y/Y) readings remains way off the ECB’s 2% target.
Canadian GDP rebounded more than expected in Q2 (3.7% Q/Qa vs 3% Q/Qa) after a disappointing Q1 (0.5% Q/Qa). A strong recovery of exports erased weakness in consumption (nearly flat) and business investment (biggest decline in 2 years). The Canadian dollar profits with USD/CAD falling to 1.3250.
Belgian Q2 GDP growth was confirmed at 0.2% Q/Q and 1.2% Y/Y, the slowest pace in 7 years. Details showed positive contributions from private (0.3% Q/Q) and public (0.2% Q/Q) consumption, gross fixed capital formation (0.5% Q/Q) and net exports (0.2% Q/Q). Inventory changes subtracted 0.3 percentage points. The unemployment rate unexpectedly ticked up from 5.6% to 5.7%.
