- Brent oil price rose slightly and rebounded north of $45 after multiple daily losses since the end of May. Despite this small rise, European stocks are heading for a third daily decline. US stocks opened mixed, while gold and silver advance. Treasury yields are little changed.
- Britain’s manufacturers are enjoying their healthiest pipeline of orders in nearly thirty years, the CBI survey for June showed. Export orders, supported by the weak pound, and overall demand are at their highest level since 1995 and 1988. This means a UK growth recovery in Q2 after the slowdown in Q1 is becomes more likely.
- Norway’s central bank kept the policy rate unchanged but removed the easing bias in its meeting statement. It eliminated the prospect of a future cut and pencilled in a first increase in the beginning of 2019. As a result, the krone jumped 0.6% compared to the euro and settled a little lower at EUR/NOK 9.48 later in the day.
- The US weekly jobless claims figure of 241k was only slightly above the consensus of 240k. This followed a slightly upwardly revised 238k in the previous week, which was initially reported at 237k.
- EMU consumer confidence in June came in higher than consensus at -1.3. After close today in the US, the Fed will release the results of part one of its annual bank stress test.
Rates
German 2-yr yield near key levels
The Bund and US Note future traded uneventful today. Recovering commodity/oil markets, small losses on equity markets and close to consensus US weekly jobless claims didn’t impact trading. The underperformance at the front end of the German yield curve continued during European dealings. Comments by ECB chief economist Praet partly explain the move. He said that prices will rise sooner or later and that this will bring about a change in monetary policy. "There is a light at the end of the tunnel". Moreover, his comments fit in the globally changing monetary policy stance. It’s becoming clearer that the peak in dovish central bank talk is behind us. The Fed is the most obvious example, but other central banks are also gradually turning the corner. The ECB’s change to its forward guidance, last week’s dissent in the Bank of England, the co-ordinated comments by the chair and vice-chair of the Bank of Canada, upbeat comments on economic growth by the RBA, the slightly more optimistic view on inflation by the RBNZ overnight and the Norges Bank dropping its easing bias this morning… The correction at the front end of the German curve, the most extremely positioned market, suggests that markets started picking up the signals. The German 2-yr yield moved above -0.63% resistance, painting an inverse head and shoulders formation on the charts. A break above -0.6% would have important technical implications. The 2-yr yield is at its highest level since November 2016. During US dealings, bonds found new vigour, partly undoing European moves.
At the time of writing, changes on the German yield curve range between +0.8 bps (2-yr) and -1.9 bps (30-yr). The US yield curve shifts -0.8 bps (30-yr) to -2.2 bps (5-yr) lower. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrowed up to 3 bps (Spain/Ireland) with Greece and Portugal slightly underperforming.
Currencies
USD desperately waiting for ‘real news’
There is still no big story to tell on the dollar. The decline of the oil price and the potentially negative impact on interest rates weighed slightly on the dollar this morning. However, the decline of oil halted, at least temporary, and so did the dollar. The data were no able to case any intraday dynamics. EUR/USD trades in the 1.1155/60 area. USD/JPY hovers around 111.25.
Overnight, Asian markets opened with a positive bias as the tech sector rebound continued. The positive momentum dwindled as the session proceeded though. Brent oil held below the $45/barrel level. The decline in oil prices and ongoing low core yields kept USD/JPY in the defensive. USD/JPY traded in the low 111 area. The dollar also traded marginally softer against the euro (EUR/USD 1.1170 area).
European equities failed to join the tech rally from the US and Asia and opened with modest losses. However, there was again little fallout from this poor start of equities on bonds or on the dollar. The correction also eased quite soon. USD/JPY dropped again to the 111 area, but the 110.65 correction low stayed well out of reach. EUR/USD still didn’t show a clear trend and held stable in the 1.1175 area. Changes in interest rate differentials were negligible.
US jobless claims printed bang in line with expectations (241 000), offering no guidance for USD trading. USD/JPY trades currently in the 111.15 area. EUR/USD is changing hands in the 1.1160/65 area.
The Norges bank kept its policy rate unchanged at 0.5%, but left its easing bias. The Norwegian Crown strengthened from EUR/NOK 9.52 to EUR/NOK 9.46 (currently 9.48) even as the oil price struggles to prevent further losses.
EUR/GBP holds near the 0.88 pivot
After yesterday’s Haldane inspired swings, sterling shifted in wait-and see modus. The political crisis isn’t solved, but there was no additional negative news. A similar story can be told on Brexit. EUR/GBP settled in a tight range close to, mostly slightly above the 0.88 barrier. The CBI trends orders were again stronger than expected, but with no noticeable impact on sterling trading. EUR/GBP trades currently in the 0.8810/15 area. Cable holds an extremely tight range in the 1.2675 area.
