Markets
This morning, European markets started the session with a positive bias. European equities had some catching up to do after a constructive price action on WS yesterday evening. Regarding the data, German consumer confidence rebounded more forceful than expected. French July business confidence also improved as the reopening of the economy continues. However, the improvement slightly missed market expectations. European equites gained up to 0.75%/1.0%. However, this time sentiment deteriorated going into the open of the US trading session. Negative headlines on a complete stalemate in the UK-EU-Brexit negotiations didn’t help European equities (cf infra). Sentiment deteriorated further as the US weekly jobless claims unexpectedly rose from 1.307 mln to 1.416 mln. The market had hoped for a stabilization. It was the first rise in weekly claims since the end of March. The report suggests that the sharp rise in corona virus infections in several US States might slow the reopening of the economy and filter through into the job market. European equites reversed most of their earlier gains. US equities opened slightly in red. US yields initially showed no clear trend, but the curve resumed a gradual bull flattening after the publication of the jobless claims. The 2-y US yield is little changed. The 30-y yield declines 3 bp. German yields are marginally higher. Interesting, after a pause yesterday, intra-EMU spreads resumed their narrowing trend. Italy and Greece again outperformed with 10-y spreads versus Germany easing 5 & 4 bp respectively. The Italian 10-y yield dropped again below the psychological barrier of 1.0%.
On the FX markets, the dollar initially remained in the defensive. The trade-weighted dollar (DXY) came ever closer to the key 94.65 support area, but a real test didn’t occur. The US currency finally captured a better bid as sentiment turned more cautious. The DXY index currently tries to regain the 95 barrier. EUR/USD briefly returned to the high 1.15 area, but a break of the 1.16 big figure again was a too high hurdle, for now. Modest profit taking brought the pair back lower but still in the upper half of the 1.15 big figure. The intraday ‘rebound’ of the dollar also aborted recent impressive rally of the likes of gold and silver.
The latest round of Brexit negotiations between the UK and the EU in London today ended in a complete stalemate. UK negotiator Frost admitted it will be impossible to reach an ‘early understanding on the principles underlying any agreement’ as was hoped for after a high level political meeting last month. Both sides accuse each other of not being prepared of striking a compromise on key points of discussion. CBI data showed that the decline of orders slowed. Firms expect orders and output to pick up in the third quarter. However UK firms are still expected to further reduce employment. BoE’s Haskel also took a rather cautious tone as he warned that opening the economy too early could worsen the economic impact of Covid-19. Sterling traded with a tentative downside bias for most of the day. EUR/GBP regained the 0.91 level. Even so, the damage for the UK currency could have been bigger given the extremely downbeat headlines on the Brexit negotiations.
News Headlines
A debate in the European parliament on the €750 bln EU recovery package and on the Multiannual Financial Framework (MFF, 2021-2027 EU budget) showed that representatives of the major parties in Parliament don’t agree with the cut is several categories of spending in the EU budget that are the result of the broader political agreement reached earlier this week. The budget leaves too little room to develop a common policy on key topics important for the future of the EU economy. The EU Parliament has to approve the MFF.
