Markets
Today’s trading session lacked strong dynamics. Risk sentiment was mixed in Asia and that remains the case in Europe. Chinese shares were exception to the rule, eking out 2% gains as the PBOC added liquidity to the system. Markets shrugged off disappointment over delayed US-Sino trade talks. The eco calendar was empty apart from the August NY Empire Manufacturing Business sentiment. The headline index fell back from 17.2 to 3.7 while consensus expect a far more modest setback (15). Details showed a decline in new orders (-1.7) with shipments (6.7) and employment parameters just holding their head of the neutral level (2.4). Expectations six months ahead showed an overall second consecutive decline as the second wave of coronavirus infections casts a shadow over the strength of the potential recovery. The market reaction to the NY Fed survey was muted. US Treasuries held a minor upward intraday bias. The US yield curve bull flattens in a daily perspective with yields declining by 0.2 bps (2-yr) to 3.3 bps (30-yr). German yields lose 0.5 bps (30-yr) to 1.1 bp with the belly of the curve outperforming the wings. Peripheral spreads vs Germany barely moved.
The path of least resistance for the dollar is still south. The trade-weighted greenback flipflopped around the 93 mark today, but is close to the intraday low as US traders get ready to join the action. EUR/USD is testing last week’s high in the 1.1864 neighborhood which serves as final (minor) resistance before returning to the cycle high north of 1.19. USD/JPY is today’s protagonist of the dollar’s struggle with USD/JPY declining from 106.6 to 106.2. Economic highlights remain scarce this week with investors mainly counting down to Friday’s PMI’s (August). Other potential road blocks are Wednesday’s FOMC Minutes, which could provide a clue on changes to the Fed’s forward guidance in September and Thursday’s data with weekly jobless claims and Philly Fed Business Outlook. Sterling traded choppy in a narrow range in the run-up to tomorrow’s start of a fresh round of brexit negotiations. Expectations are low even if UK negotiators still target a deal by September. EUR/GBP temporarily touched EUR/GBP 0.9060 for the first time since the end of the July. GBP/USD steadied around 1.31 in a balance of weakness.
News Headlines
A meeting by OPEC+ in two days is expected to hold no major changes after the world’s largest oil producers agreed to ease cut to 7.7 million barrels per day from 9.7 million previously. Instead, focus will go to adherence by countries including Iraq and Nigeria of the current curbs. Sources told compliance is around 97% for the month of July.
The Czech government will make the wearing of face masks obliged again starting September 1st on public transport and in many indoor public buildings. The country’s health minister Vojtech said the measure is preventative as the number of coronavirus cases have started to trend higher again. He warned for a “complicated autumn”, especially when schools reopen in September.
Germany’s finance minister Scholz proposed to extend the job-preserving scheme to 24 months. The country’s short-time compensation shields workers and companies from massive job cuts with the government paying up for the loss in income. The decision would cost an estimated extra €10 bn euro.
