Markets
Markets started the week in wait-and see modus today. Investors considered last week’s US data as weak enough to force the Fed to extend its tactics of further preventive rate cuts later this year (end October and/or December). This week the eco calendar is less heavy than last week and mostly backloaded (US CPI on Thursday, consumer confidence on Friday). Fed communication (Fed speakers & Fed Minutes on Wednesday) might be important to shape markets’ expectations on the timing of further Fed action. At the same time there is still plenty of political event risk. Brexit and investigations against president Trump always have the potential to cause market nervousness. However, markets mainly look forward to process/concrete results of new high profile trade negotiations between the US and China planned to take place from Thursday in Washington. Most recent headlines suggest that China only wants a limited trade deal, leaving many key issues still pending. Uncertainty on the trade negotiations and fear for a new failure, is causing investor caution today after a strong WS performance on Friday. Regarding the data, German August factory orders were again weak. German/EMU yields declined this morning, but reversed the initial move this afternoon. German yields are rising less than 1bp. US treasuries hovered sideways in Asia and in Europe but lost slightly ground early in US dealings. US yields are rising between 2.5 bp (2-y) and 1.2 bp (10-y). The US Treasury sells 3-y, 10-y and 30-y bonds this week. 10-y intra-EMU spreads versus Germany are little changed except for Greece (+8bp) as the country intends to reopen a 10-y bond.
EUR/USD mainly held the sideways range (upper half 1.09 big figure) that is in place since the publication of Thursday’s poor US non-manufacturing ISM. Weak German order data and a cautious risk sentiment caused some euro selling in Europe this morning. However, the 1.0960 ST support held. EUR/USD reversed the initial loss, but there was also no strong enough driver for the pair to really challenge the 1.10 psychological barrier (currently 1.0985/90 area). USD/JPY is trading with a cautious positive bias and again nears the 107 big figure.
EUR/GBP also showed no clear trend today. The pair hovered in a tight sideways range in the low 0.89 area. Considering the communication in the press, both sides apparently didn’t make any progress on a deal as they discuss the proposals that UK PM Johnson made on the Irish backstop last week. Both parties apparently started some kind of ’blame game’ to reject to possibility of a potential failure. For now the (FX) market doesn’t draw any firm conclusions yet. Cable is trading in the low 1.23 area;
News Headlines
A draft budget shows that Greece’s government is forecasting 2.8% economic growth in 2020, which it hopes to realise through higher investment and fiscal stimulus. The draft budget signals the country’s gradual return to growth, employment and income increases after battling a decade-long debt crisis.
German factory slump deepens as factory orders have declined further by 0.6% in August. The larger than expected decline was mainly caused by weak domestic demand, which dropped by 2.6%. The plunge in factory orders is the latest in a string of gloomy news that is driving increased uncertainty and pessimism about the eurozone’s economy. The manufacturing slump that initially seemed a temporary concern, has proved long-lasting amid escalated trade tensions and faded prospects of a Brexit-deal.
