Markets
Trading took off at a slow pace today. The start of the week could be disturbed by more technical elements given Wednesday’s end of month/end of quarter (index extension buying, duration extension,…). Afterwards, focus will turn to the economic data with EMU June CPI inflation, US labour market data (ADP and payrolls) and US manufacturing ISM. An avalanche of ECB speakers including Lagarde is scheduled to speak but the bar to change current market thinking seems rather high after the dovish signal from two weeks ago. The scorecard for today shows minor losses for main European indices with Spain (-1%) underperforming. Tourism-related names suffer from PM Sanchez’s decision to request full vaccinations or negative covid tests for UK travelers to the Balearic Islands. The Portuguese government even wants 14 days of isolation for UK passengers who aren’t fully inoculated. Core bonds start on a solid footing with US Treasuries outperforming German Bunds. The US yield curve bull flattens with yields sliding by 0.8 bps (2-yr) to 3.3 bps (30-yr). German yields drop by 0.3 bps (2-yr) to 2.2 bps (10-yr). 10-yr yield spreads vs Germany narrow marginally. The US dollar is marginally stronger in FX space with EUR/USD currently changing hands around 1.1920 from an open near 1.1940. Sterling is again going nowhere in the high 0.85-zone.
The Belgian debt agency raised a total amount of €3.79bn at its regular OLO-auction. OLO 92 (€1.93bn 0% Oct2031), OLO 86 (€0.59bn 1.25% Apr2033) and OLO 88 (€1.27bn 1.7% Jun2050) were on offer. The auction bid cover was a rather modest 1.39. The debt agency year-to-date raised €26.07bn via a combination of syndications and regular auctions which is 71.6% of this year’s total expected OLO funding need. The EU today announced its intention to launch a dual NGEU benchmark via syndication tomorrow (5y & 30y). Its inaugural bond, issued a fortnight ago, was a huge success. The 10y deal met with €142bn (!) bids, allowing the UE to print €20bn. The EC intends to issue €80bn of long-term bonds in 2021 and short-term EU bills to fund Europe’s recovery under the NextGenerationEU. The total package of some €800bn will be borrowed between mid-2021 and 2026, translating in on average roughly €150bn/year. All borrowing will be repaid by 2058.
News Headlines
After losing a vote of confidence on a change in the legislation on rents in the housing market last week, Swedish PM Stefan Lofven today resigned. He will continue to lead a caretaker government, but didn’t call for early elections and asked the speaker of the Parliament to start talks to form a new Government. As Lofven is the leader of the biggest party in a divided political landscape, he is expected to play an important role as these negotiations will start. The impact of the political tensions on krone/Swedish markets was limited as the fiscal situation in the country remains solid. This morning, Swedish May retail sales printed at a strong 2.3% M/M and 10.3% Y/Y, suggesting a solid rebound in consumer demand. On Thursday, the Riksbank will announce its policy decision. Until now, it was reluctant to signal a reduction in policy stimulation and a guarded approach is still expected at this week’s meeting. Already since the end of last year, EUR/SEK (10.12) is holding a consolidation pattern between 10.00/10.30.
According to an interview with Bloomberg TV, the head of the Central bank of Russia, Nabiullina, indicated that the central bank is ready to consider raising its key interest rate by between 0.2% and 1.0% at the July 23 policy meeting. Contrary to what is the case in other countries, she sees price increases as more persistent, not transitory. Both inflation and core inflation printed at 6.0% in May, well above the 4.0% target of the central bank. The Central Bank of Russia this year already raised its policy rate by 1.25% to 5.50%. The ruble hardly gained any further ground on the comments. However, at USD/RUB 72.20, the strongest levels of the ruble for this year still are within reach.
