Markets
Today’s session was one big, stretched yawn from beginning until the end. The economic calendar wasn’t really enticing. US July durable goods orders (11.2% m/m) smashed expectations (4.8%) after already a rebound in June and May. Admittedly, the series are notoriously volatile. Core measures were a little less jaw dropping but came in better than consensus nonetheless. The impact on markets was minimal however. Germany’s decision after the European close yesterday to extend the wage support programme, known as Kurzarbeit, until the end of 2021 served as today’s actual trading theme. It was probably the only reason EMU equities are keeping it afloat today. France is due to present a new €100 bn stimulus plan on September 3rd. Stocks advance about 0.3 to 0.4% with a marginal outperforming German DAX. Core bond markets eagerly await tomorrow’s speech by Fed Powell where he is expected to anchor a symmetrical inflation target as the central bank’s official objective. Recent US nominal yield dynamics at least suggests investors are willing to believe the Fed’s commitment to overshoot inflation temporarily to make up for past misses. Kansas Fed George did say she is skeptical of such a policy change during an interview today however, keeping markets on edge for tomorrow. Anyway, rising inflation expectations were again the main driving force behind today’s US yield increases which at some point amounted up to 3.4 bps (30-yr). But the US Chief of Staff Meadows denting hopes for a quick cross-party stimulus deal (“Pelosi is likely to hold out until end of September”) in early US trading triggered an intraday reversal. US yields now rise just 1.7 bp at the long end. The German Bund slightly underperforms. The yield curve bear steepens with yields changing +1.5 bps (5-yr) to +2.7 bps (30-yr). Peripheral yield spreads vs. Germany’s 10y decline -3 bps (Greece) to -4 bps (Spain).
The US dollar traded most of the day strong against G10 currencies but had to forfeit a large chunk of its gains in the wake of Meadow’s comments. The trade-weighted DXY tested recent highs at 93.3/93.4 but currently changes hands in the 93.16 zone. USD/JPY returned to intraday lows around 106.2. EUR/USD fell from 1.184 this morning towards the 1.18 big figure in early afternoon trading. A temporary break below triggered a technical acceleration further south. The strong durable goods helped push the dollar to an intraday gain in EUR/USD of 1.177 but those gains faded soon enough before evaporating almost completely. The pair is currently filling bids at 1.182. In a sign there is some overall euro weakness too, the common currency also declines against the Japanese yen (EUR/JPY fails to take out 126, the highest level since April 2019) and the British pound. EUR/GBP gives up 0.90 and edges lower within the 0.895/0.915 sideways trading range as informal Brexit talks continue this week. Cable is more or less unchanged near 1.314.
News Headlines
Hawkish Kansas City Fed President George sounded skeptical on a possible near term overhaul of the Fed’s 2% inflation target: “I’m not an advocate of letting inflation run hot. We are bound to achieve price stability.” In the short term, it’s too soon to speculate on possible additional monetary support, but the central bank is going to be very vigilant.
US durable goods orders extended their rebound, rising 11.2% M/M in July, beating 4.8% M/M consensus. The unexpected surge was due to car demand, with core capital goods orders excluding aircraft and military hardware, rising by a much more moderate 1.9% M/M.
