Markets
Few economic data and lack of other news brought another sentiment driven trading session yesterday. The gradually improving risk mood after a shaky Asian session didn’t make it until the end of the European session. EMU stocks gave up intraday gains of 0.5% while German yields turned a 1 bp rise at the long end of the curve (10y, 30y) to similar losses. Peripheral spreads were unchanged. Stocks in the US displayed a different picture. Tech lead the way higher again after brushing off early weakness. The S&P500 surpassed the February top to close at a record high. US Democrats willing to compromise in fiscal stimulus talks likely supported the intraday turnaround. US yields traded choppy but closed lower eventually. The curve bear flattened as yields dropped ‐1.9 bps (10‐yr) to ‐3.8 bps (30‐yr). The US 10y real yield declined to ‐1.04% yesterday, further undoing last week’s supply‐driven rise. These real yields were an important driver behind the dollar weakness over the past few weeks and again yesterday. The greenback even slipped below key technical support areas after the WH’s economic advisory council dimmed expectations for another large stimulus shot, accelerating the downward move. The trade‐weighted dollar (DXY) fell from 92.82 below the previous August low to 92.27. EUR/USD jumped beyond resistance at 1.1916 to hit an intraday high of 1.1966. The pair closed at 1.1931 eventually. Largest losses were to the Japanese yen. USD/JPY slipped from the 106 area to 105.41. A weaker dollar to sterling filtered through in EUR/GBP too, falling from 0.906 to 0.901.
Asian markets fail to build on yesterday’s WS performance. Indices trade mixed in a session devoid of news. South‐ Korea outperforms after a poor Tuesday. China lags amid a request from the US state department to colleges and universities to divest from Chinese companies. HK markets are currently closed due to a typhoon. Core bonds trade sideways. The dollar steadies after yesterday’s blow. DXY (92.35) pared opening losses as did USD/JPY (105.57). A mirror move in EUR/USD keeps the pair more or less unchanged at 1.1934.
Today’s highlight on the eco calendar are the Fed meeting minutes. The previous policy meeting wasn’t quite a gamechanger. However, it might be interesting to see the discussion evolving on additional forward guidance which some expect could come as soon as September. The US selling 20y bonds also draws attention but unlike last week, supply this week hasn’t really supported yields whatsoever, on the contrary. Barring an exceptionally poor auction, we’d be wary to row against the current tides, meaning core bonds’ downside is well protected. The dollar’s decline could slow from here on but yesterday’s move undeniably deteriorated the technical picture dramatically. We don’t expect the big recovery to happen soon. Sterling slightly gains on this morning’s surprisingly strong inflation figures (headline 0.4% m/m vs. ‐0.1% expected, core: 1.8% y/y vs. 1.2%). Assuming knock‐on effects from a plummeting dollar eases, we expect EUR/GBP to hold steady as Brexit talks develop. EUR/GBP 0.90/ is next support.
News Headlines
US undersecretary for economic growth Krach advised board of directors of US universities and colleges that it would be prudent to divest Chinese firms’ stocks in their endowments in the likely outcome that enhanced listing standards lead to a wholesale de‐listing of Chinese firms from US exchanges by the end of next year. This guidance fits in the broader US strategy to slow the flow of investments into Chinese companies. Earlier this year, the government targeted pension funds.
US Postmaster General DeJoy said he is suspending scheduled operational changes until after the November presidential ballot in order to avoid even the appearance of any impact on election mail. US Democrats earlier accused DeJoy of working with US President Trump to sabotage the mail‐in‐voting progress which is expected to surge because of the COVID‐19 pandemic.
