Markets
Today, global sentiment turned a bit more fragile. A more cautious investor positioning already developed yesterday evening on Wall Street. The move was reinforced this morning as the US ordered the Chinese consulate in Houston to close. The US said the move was aimed “to protect American intellectual property and Americans’ private information.” Chinese equities nosedived into the close. European shares already struggled at the open and took the way south as China vowed that it would react with firm countermeasures. In the past, risk-off corrections due to rising geopolitical tensions between the US and China were often rather short-lived. However, at least in a daily perspective they are a potential reason to take some profit. There were few eco data with market moving potential in EMU and the US today. European equities on average are losing about 1.0%. US equities open little changed. The earnings season is in full swing. Most results are not too bad compared to consensus. Investors are looking forward to bellwethers including Microsoft and Tesla that are scheduled to publish results after the close of US markets. Yesterday, commodities including gold, silver but also oil showed significant gains Especially silver and gold remain well bid, but the rally was interrupted on the headlines of rising tensions between the US and China. So, it looks that this was more a reflation trade on ample monetary conditions, rather than a run to safe haven assets. The risk-off this time also filtered through in the core US and European bond markets. Curves bull flattened. US yields are little changed (2-y yield) to 2.5 bp lower (30-y). German yields are declining between 1.8 bp (2-y) and 3.5 bp (30-y). The German 10-y yield is nearing the -0.5% support area, marking a MT range bottom. Germany successfully sold € 1.26 bln of 30-y bonds (Aug 2048) at a bid-to-cover ratio of 2.4. Later today, the US will sell $17 bln of 20-y bonds. Of late, markets digested the supply of bonds with longer mantuaries very well. 10-y peripheral spreads versus Germany showed a mixed picture, with Italy still narrowing 2bp while Greece slightly underperformed (+3bp). In a broader perspective peripheral EMU markets remain well bid in the wake of the EU rescue deal, reinforced by ongoing ECB support.
On the FX markets, the dollar doesn’t profit from the less buoyant global risk sentiment. The trade-weighted dollar index (DXY) is drifting below the 95 handle with the key March low (94.65) coming within reach. In line with yesterday’s intraday price pattern, EUR/USD took a breather during the European morning session. However, USD selling restarted in the run-up to the start of US dealing. EUR/USD confirmed yesterday’s break above 1.1495 and is nearing the 1.16 big figure. Sterling again underperforms. The UK currency fails to gain against a weak dollar and is losing further ground against a strong euro. EUR/GBP is trading north of the 0.91 big figure (0.9125 area). Headlines on the Brexit negotiations suggest that hardly any progress has been made of late.
News Headlines
Canada consumer price inflation rose 0.8% M/M in June to be up 0.7% Y/Y. Inflation printed negative in May (-0.4% Y/Y). The rise in June was substantially bigger than expected. Markets only anticipated a return to 0.2% Y/Y. A rise in energy prices was an important driver. However, core inflation excluding food and energy also rose 0.5% on a monthly basis. The direct impact from the release on the Canadian dollar was limited.
US existing homes sales rose a record 20.7% M/M in June to a seasonally adjusted rate annual rate of 4.72 mln. Even so, the figure was marginally weaker than expected after sales declined sharply in the previous three months.
