Markets
Europe was in focus for most of the trading day. The European Sentiment Indicator (ESI) confirmed (final) consumer sentiment improved further in June from -5.1 to -3.3 – a three-year high. Combined with producer buoyancy, the ESI rose to the highest level in 21 years. The index advanced for a sixth month straight to 117.9 vs. 114.5. Optimism across all sectors improved but for obvious reasons most in retail (from 0.5 to 4.5) and the services sector (11.3 to 17.9). A different breakdown revealed companies haven’t been this optimistic on their order-book levels in the 40-year old history of the indicator. The assessment of export order-book levels and employment expectations (3 months ahead) rose to multi-year highs. Expected production eased from a record high last month to a still very lofty 21.1. Selling price expectations over the next three months continue to surge to levels last seen in the eighties. This brings us neatly to inflation figures. German HICP eased from 2.4% y/y in May to 2.1% in June, mainly the result of base effects. Monthly price developments suggest upward pressures are still there (0.4% m/m). Regional inflation releases showed energy, transportation, leisure and hospitality being the main contributors. In final European news, the bloc raked in more than 130bn euro of orders for its second bond sale under its NextGenerationEU program, AKA the recovery fund. The EU plans to sell 9bn of 5y debt (MS-11bps) and 6bn of 30y (MS+22bps). More issuance is to follow by the end of July while green bonds are expected to come later this year.
Now what did this all mean for markets? Not a lot, unfortunately. Overall risk sentiment remained the key driver today. EMU stocks recouped some of yesterday’s losses with gains ranging 0.6-1.1%. US equities open mixed: the DJI and S&P500 in green, the Nasdaq sheds 0.2%. German yields traded choppy until 2PM. The time slot marked the start of an upleg and coincided with the German inflation release. We’re unsure however if that really was the trigger since a similar move higher also occurred in US yields. Anyway, the German yield curve bear steepens with rates flat at the short end and a 2.1bps rise in the 10y. Peripheral yield spreads decline marginally with Greece (-2 bps) outperforming. US yields rose 2.5 bps (30y) at some point but halved during US opening minutes. Both the dollar and the Japanese yen retain the upper hand on FX markets, suggesting a still-fragile environment. A solid performance brings the greenback sub EUR/USD 1.19 with a minor technical acceleration after breaching that big figure. Support for the euro lies at EUR/USD 1.185. The trade-weighted DXY tries to settle back north of 92 again. USD/JPY is steady around 110.68, EUR/JPY extends its trip south of 132 to 131.51. EUR/GBP rose above 0.86 but reversed course to just below that level after nearing the upper bound of the downward April-June trend channel.
News Headlines
According to the House price index of UK Nationwide Building Society, house prices rose 0.7% M/M, the third consecutive monthly rise, to be up 13.4% Y/Y. The yearly growth pace was the fastest since November 2014. Prices in June were almost 5% higher compared to March. The rise pushed the average residential property price to a new record (£245,432). All regions saw higher prices in Q2. A property a tax holiday introduced by the government since July last year will be tapered from next month and probably accelerated housing transactions, amongst other factors.
In its 2021 Article IV consultation with Hungary, the IMF expects 6.2% growth for this year. Average inflation is seen at 4.1%. The Fund assesses the fiscal support as embedded in the 2021 and 2022 budgets as appropriate. Concerning monetary policy, the Fund said ‘at this stage no more than a modest tightening of monetary conditions will be necessary as long as inflation expectations remain well-anchored, but upward risks to inflation will need to be monitored closely. Conversely, monetary policy might need to be further eased should the recovery falter’. Separately, Hungarian Prime Minister Orban today said that the government will have to provide additional support to ensure that the economy expands 5.5% this year. PM Orban faces parliamentary elections next year.
