Markets
Markets took a rather guarded start for the new week. Some high profile M&A deals in Asia and the US supported regional equity markets. US equities also try to find a bottom after last week’s (tech-driven) setback. Headlines on a corona vaccine turned again more positive even as there is no concrete timing yet. With corona infections reaching record daily levels, markets clearly need some good news on this topic to keep a positive mood. European markets also opened in green, but couldn’t build a convincing momentum. US indices opened with gains of 1%(+). In Japan, Yoshihide Suga is elected as the leader of ruling LDP to be appointed as new PM on Wednesday. His big win should comfort (Japanese) markets as Suga is expected to continue the Abenomics prescript of ample monetary and fiscal stimulus combined with structural reform. According to his first remarks, Suga is in no hurry to call new elections. The yen is trading mixed, gaining against the dollar (USD/JPY below 106) but holding stable to marginally softer against the euro EUR/JPY (125.80 area). These yen moves probably were mainly driven by the overall euro and USD trends. Regarding those broader trends, recent and upcoming central bank talk supports some by default euro strength/USD softness. Last week’s ECB meeting and recent ECB comments illustrated that the valuation of the euro is a topic of debate within the ECB. Further verbal interventions are possible. However, the market (rightly) assumes that the stronger euro (and its implication for inflation) won’t translate into concrete ECB action anytime soon. The Fed gradually moving to implement its new policy framework continues to weigh on the US dollar, even as Powell and Co are not expected to make a big policy U-turn at Wednesday’s policy meeting. EUR/USD is trending higher in the 1.18 big figure, with the 1.1750/1.18 area providing good support. The TW dollar (DXY) is returning back below the 93 handle. On core bonds markets, yields changes are limited. US yields are changing up to 1.2 bp (5-y). The German curve flattens marginally (-2 bp 30-y). Brent oil still struggles not to fall further below the $40 p/b level.
This week, we will get an in extenso update on the UK economy with labour market data (Tuesday), price data (Wednesday) and retail sales (Friday). On Thursday, the BoE will hold a policy meeting. Markets will closely monitor any indications on future stimulus in the form of additional bond buying or negative interest rates. The debate on negative interest rates remains a source of concern for sterling. Even so, Brexit probably continue to dominate sterling trading short term. PM Johnson brought its controversial Internal Market Bill to Parliament today. A first vote allowing the procedure to proceed is expected this evening. PM Johnson continuing these legal steps despite opposition from his own party, will only raise uncertainty on whether a hard Brexit can still be avoided. Sterling today regained some ground after last week’s steep decline. Still EUR/GBP is holding north of the 0.92 big figure. The confirmed break above the 0.9175/85 area still suggests a negative setup for the UK currency longer term.
News Headlines
The Organization of the Petroleum Exporting Countries (OPEC), which celebrates its 60th anniversary today, published its monthly oil market report. The global oil demand contraction is revised down further by 0.4mb/d, now contracting by 9.5 mb/d to average 90.2 mb/d. Especially the weaker oil demand performance in India hurts. Risk remain elevated and skewed to the downside. Brent crude intensively tests the recent sell-off low at $39.3/b.
European industrial production extended its rebound in July, rising by 4.1% m/m, following a 9.5% m/m surge in June. Details showed a cross-sector improvement with intermediate goods (4.2%), energy (1.1%), capital goods (5.3%), durable consumer (4.7%) and non-durable consumer (3.9%) all rising. On a three-month basis, production is 0.9% higher. On a yearly basis, it is down 7.7%.
