Markets
Risk off held sway across most markets yesterday. European stocks lost about 0.8-1%. An intraday rebound limited losses on WS to 0.6% (DJI) or even brought the green back on the scoreboard (0.17% Nasdaq). Core bonds went through the roof. Sure, the US services ISM disappointed, declining from a historical 64 to a still-lofty 60.1 (63.5 expected) on easing momentum in business activity and hiring (again sub 50). However, it only strengthened, not triggered, the existing trend. The US yield curve bull flattened with jaw dropping yield changes varying from -1.5 bps (2y) to -7.6 bps (10y). Perhaps some liquidity issues (going into the Summer lull) as well as technical elements had their share in yesterday’s dazzling session as well. The US 10y yield fell through 1.43% support and went straight for a test of June low around 1.35%. The 30y gave way to the 2% too, forcing some UST shorts to throw in the towel. The German 10y (-5.8 bps) tanked sub -0.25% support (finished at -0.268%). The 30y took it up a notch, shedding 7.4 bps to finish at the lowest level in three months. Somewhat not fitting the general risk off idea however, is the steep fall in EMU peripheral yields basically as much as Germany’s. Gold initially traded according to the script, taking out $1800 again only to pare all gains even as sentiment remained dire and core bond yields extended losses. One element thwarting the rise of the precious metal was the USD. EUR/USD’s attempt to take back the high 1.18 area failed and instead visited intermediate support at 1.181. The real outperformer was the yen though. USD/JPY dropped from 110.97 to 110.63. EUR/JPY intraday ditched a full big figure (close 130.81). EUR/GBP tested the 0.853 support area, the last line of defense before the April low (0.8472), but eventually closed unchanged around 0.857. Oil dipped $2.5/b, whacking the likes of CAD and NOK.
Most Asian stocks are losing ground this morning. Japan underperforms following yen strength. US bond yields are licking their wounds (up about 1 to 1.5 bps). The dollar trades marginally on the back foot. EUR/USD holds near yesterday’s close.
We’re very keen to see market dynamics play out after yesterday. A day like Tuesday usually doesn’t just come and go. The hefty bond market moves and the (US) tech and dollar outperformance are a chill reminder to the 2020 trade when corona casted a large, dark shadow over the economy. Are markets again worried about growth going forward now that the easy part, more so in the US, is behind us? The topic could serve as a theme in coming days, especially with the remainder of this week’s economic calendar, including today (interim EC forecasts and Fed meeting minutes only due this evening), eying pretty empty. Both core bond yields and EUR/USD are not out of the woods yet.
News headlines
The Central Bank of Hungary announced to have reviewed its Green Monetary Policy Toolkit Strategy. As a first step, the Monetary Council launched two new programmes to promote and boost green mortgage lending: The Green Mortgage Bond Purchase programme and the FSG Green Home Programme. The Green Mortgage Bond Purchase Programme aims to contribute to the development of the domestic green mortgage bond market through targeted purchases and, through this, encourage green mortgage loan activities. The Bank set an initial target of HUF 200 bln for this scheme. Under the second scheme, the central bank will launch cheap loans for banks in October to encourage green mortgage lending, with a total limit of 200 billion forints. Under the scheme, loans of up to HUF 70 million and a maximum term of 25 years can be granted for constructions or purchases of new, highly energy-efficient residential real estates.
Yesterday, European Commissioner Maros Sefcovic again raised the proposal for the UK to agree on a Swiss style veterinary agreement to avoid Sanitary and Phytosanitary checks for agri-food products. Under such an arrangement, the UK and EU rules would be aligned, removing the need for safety and animal health checks at the broader on the Irish Sea. Until now, the UK has rejected such a solution on the basis of sovereignty concerns
