Markets
Positive developments in treatments for Covid-19 disease proved once again a catalyst for broad market optimism yesterday in an otherwise uneventful session. EMU stocks wiped out Friday’s PMI driven losses and soared more than 2%. WS eked out gains up to 1.35%. Oil prices continue to touch key resistance near $45/b with recent price rises in part driven by production outages as storms threaten the US coast. Gold’s intraday gains faded as the USD rebounded (cf. infra). Core bonds traded volatile but finished the day lower eventually with USTs underperforming. The US yield curve bear steepened with yield changes varying from 0.9 bps (2-yr) to 2.5 bps (10-yr). German yields rose 1.6 bps (10-yr) to 2 bps (30-yr). Peripheral spreads narrowed marginally with Greece and Italy outperforming (both -2 bps). The dollar initially stayed in the defensive. EUR/USD touched an intraday high of 1.185 before turning south (dollar strength), along with gold prices and USTs (yields up), to close at 1.1788. The DXY printed a mirror image and closed slightly higher eventually (93.3). USD/JPY finished just shy of 106. Sterling extended Friday’s losses triggered by a disappointing outcome of yet another Brexit round. EUR/GBP rose a tad from 0.901 to 0.902.
Risk sentiment remains relatively upbeat during Asian dealings. A call between US and Chinese trade negotiators discussing the trade deal did the trick. Both sides see progress in the execution of the agreement and are committed to carry it out completely. Investors welcome the constructive tone of the call at a time where US/Sino tensions had been building again over the past weeks. Stocks rise with South Korea (+2.2%) outperforming after solid consumer confidence. Core bonds are downwardly oriented. NZ yields continue to explore new lows after a strong 2027 bond sale. The dollar edges lower to most peers. USD/CNY dips towards 6.91. EUR/USD tentatively settles above 1.18. USD/JPY is going nowhere near 106.
Today’s economic calendar contains some interesting data, including August US Conference Board consumer confidence and Germany’s Ifo indicator. Both are expected to print marginally higher compared to the July readings but we see risks tilted to the downside, especially for the latter after the poor PMI readings last week. We don’t expect them to have a major market impact however. Stock markets will likely continue to reach for the sky. Current circumstances in theory hurt core bonds. US10y yields are set to trade in the upper half of the sideways 0.56%/0.74% trading range. The 10y real yield stabilizes near -1%. The upcoming (dovish?) speech by Fed chair Powell helps to protect core bond’s downside though. We remain cautious on the dollar for the same reason. EUR/USD might trend higher within the established trading 1.17/1.19 range but we don’t expect technically significant moves to occur soon. The British pound could profit from the ongoing buoyant risk mood but the big leap higher probably isn’t due until signs of a breakthrough in Brexit talks are emerging.
News Headlines
US Trade representative Lighthizer and Treasury Secretary Mnuchin held a scheduled call with Chinese VP Liu He. Both sides see progress on the phase one trade deal and are committed to taking the steps necessary to ensure the success of the agreement. In their call, they addressed steps that China has taken, including significant increases in purchases of US products as well as future actions needed to implement the agreement. Main US equity indices added 0.6% to 1.35% yesterday with futures pointing to additional gains.
The Australian Bureau of Statistics issued a new release, weekly payroll job and wages data (week ending Aug 8). Nationally, payroll jobs were around 4.9% below mid-March, with total wages falling by 6.2% over the same period. The impact of the Victoria State lockdown started showing in data from the month running up until Aug 8, which showed payrolls down 2.8% in the State. AUD/USD hovers in the high 0.7150 region.
