Markets
Yesterday’s downbeat Fed meeting minutes set the tone already at Asian dealings with stocks easily losing 1-3%. The mood remained equally grim during today’s European session, partly due to the fact that there was little other news other than the minutes for investors to focus on. Stocks slip about 1.5%. China’s ministry of Commerce said it will hold talks with the US on trade in the near term. The ‘positive’ news however hung in the balance with comments a bit later that China would vow all necessary measures over the US’s recent Huawei rules. US economic data disappointed but had no major impact on markets. Weekly jobless claims unexpectedly rose from 971k to 1106k in the week ending August 15. Continuing claims fell further from 15480k to a still lofty 14844k. Core bonds remained well bid in a typical risk-off move. The US yield curve bull flattens with yield changes varying from -2.4 bps (5-yr) to -5.1 bps (30-yr). Interesting observation is that we see the US 10y real yield stabilizing near current levels of -1% though. Today’s decline is driven by a fall in inflation expectations. Germany’s yield curve shifts lower in a similar fashion, slightly outperforming USTs. Peripheral spreads to the German 10y yield rose 2 bps (Spain) to 4 bps (Greece).
The US dollar managed to keep and even marginally extend yesterday’s sudden gains to most major peers. The stabilization in US real yields certainly helped to put a floor. At the same time, the failure of Tuesday’s technical breaks to last also played into the advantage of the greenback. The trade-weighted USD trades in the low 93 area. EUR/USD is fill bids in the 1.182 area, down from 1.184 this morning. USD/JPY arm-wrestle near the 106 pivot as both compete with each other in today’s risk-off session. Sterling was on course for a day in the defensive but succeeded an intraday turnaround to trade a tad stronger to the euro near EUR/GBP 0.902. Moves remain limited in scale however. Tomorrow’s conclusion of the sixth round of Brexit negotiations might provide more guidance for sterling investors going forward.
News Headlines
The Norwegian central bank kept its policy rate unchanged at 0%. Governor Olsen expects that this will likely remain for some time ahead. Activity has picked up in recent months, but remains lower than prior to the pandemic. Unemployment has declined but is still high. Inflation surpassed the target is forecast to moderate further out. EUR/NOK rose today from around 10.55 to 10.62, but that has more to do with negative risk sentiment then with the Norges Bank meeting.
US weekly jobless claims rose again above 1 million (1106k vs 920k expected) with continuing claims sliding from around 15.5 million to 14.84 million, the lowest since early April. The Philly Fed Business Outlook declined more than forecast in August, from 24.1 to 17.2. Details showed especially weakness in current conditions (eg setbacks in new orders, shipments and number of employees), while the forward looking (6 months) gauge managed to stabilize at a low level (38.8 from 36).
The ECB, BoE, BoJ and SNB will reduce the frequency of 7-day dollar operations from three times per week to once, while 84-day operations will still be offered weekly. The new frequency is effective from September 1st and will remain in place for as long as appropriate to support a smooth functioning of US dollar funding markets. The provision of USD liquidity can still be re-adjusted if warranted by market conditions.
