Markets
Today, global markets were mostly in wait-and-see modus. There were only second tier eco data in Europe. Equites tried a cautious rebound even as corona virus infections are rising in several regions within Europe, complicating the reopening of the economy. The (US & European) earnings session is in full swing. Q2 earnings often were not that bad (compared to consensus). The outlook remains uncertain. European equities again underperform with most indices losing modest ground. US equity indices opened with gains of about 0.5% after yesterday’s correction. Regarding the data, the US June goods trade deficit was substantially smaller than expected as exports rebounded sharper than imports but the report had no lasting impact on global trading.
On the interest rate markets all eyes are on this evening’s Fed policy meeting. US yields are little changed, mostly marginally lower (-1 bp for the 5-y). The Fed is expected to keep the Fed Fund target rate unchanged at 0.0% to 0.25%. The Fed isn’t expected to announce meaningful changes to its policy framework. Even so, the prospect for the US economic recovery obviously deteriorated since the Fed’s assessment at the June meeting. Markets at least expect the Fed to acknowledge this evolution and reconfirm some ‘whatever it takes’ commitment to take additional measures if necessary. Yesterday, the Fed already did so by extending 7 lending programs to the end of the year in order to support the credit flow to the economy as much as possible. German yields are marginally higher in a daily perspective. The German 10-y yield is still struggling to avoid a further decline below the symbolic -0.5% mark. After a limited spread widening yesterday, intra-EMU 10-y spreads versus Germany were again stable to even slightly narrower. The ECB presence still (more than) counterbalances growing uncertainty on the regional economic outlook.
In line with yesterday’s price action, the dollar is holding close to, or for some cross rates even testing recent low levels. However further sustained/meaningful losses are avoided, at least for now. The trade weighted dollar (DXY) touched a minor correction low (93.42 area) but trades again little changed in the 93.55/60 area. USD/JPY filled bids in the 104.80 area, but returned to the 105 pivot. EUR/USD is a marginal underperformer. The pair hovers in the mid 1.17 area. However, the top in the 1.1780 area is still within reach.
Sterling continued yesterday’s constructive price action. Cable is catching up on the broader USD decline. The 1.30 barrier is coming with reach. At the same time, EUR/GBP drifted further south below the 0.91 level (currently 0.9055 area). We didn’t see a hard trigger for the sterling outperformance. UK yields stay near recent (very) low absolute levels, but didn’t decline further. According to headlines/rumors the UK was reported to be close to reaching a post EU-trade deal with Japan.
News Headlines
The US goods trade deficit narrowed substantially in June from $75.3 bln to 70.6 bln. According to the commerce department, exports of good rose 13.9% to $102.3 bln. Imports rose much more modest by 4.8% to $173.2. However, the overall level of US trade (combined import and export) is still about 20% below the pre-corona level.
