Markets:
The long end of the US yield curve remains in sell-off mode. The US 30-yr yield is the first to arrive at the 2022 cycle top (4.42%), setting a minor new intraday high; the highest level since 2011. The US 10-yr yield tried to do the same at 4.34%, but the attempt was blocked by the technical bump at the very long end. Decent US eco data nevertheless suggest that another push is possible. Weekly jobless claims as expected fell from around 250k to 239k. The August Philly Fed business outlook posted a huge upward surprise, rising from -13.5 to 12 (vs -10.4 expected). It’s the best level since April 2022. Details showed improvements in new orders (first positive reading in the diffusion index in over 6 months) and shipments. The number of employees deteriorated marginally, but the average workweek increased (also first positive in over half a year). The majority of firms continues to see increases in both prices paid and received. The 6-month forward looking gauge fell back after last month’s extreme surge, but the reading is still the most rosy since April 2022. Daily US yield changes range between -2.7 bps (2-yr) and +5.5 bps (30-yr) at the time of writing. The outperformance at the front end is technically inspired after failing to take out the psychological 5% mark. German Bunds and UK Gilts face selling pressure as well today with German yields adding 1.5 bps (2-yr) to 4.2 bps (30-yr) and UK yields up 2.1 bps (2-yr) to 5.7 bps (10-yr). Central bankers remain in holiday modus ahead of next week’s Jackson Hole gathering with ECB Kazaks being exception to the rule. He said that future increases in interest rates, if any, will be really very small especially compared with the big rise behind us. European money markets are currently split 50/50 over whether or not the ECB will lift its policy rate to 4% at the September meeting – our preferred scenario. Just like the Fed, the Lagarde and co are officially in data dependence modus. August CPI data are due August 31 and could be pivotal.
The dollar failed to eke out more gains with EUR/USD returning above 1.09 without actually testing the July low at 1.0834. The Japanese yen gets some marginal breathing space (USD/JPY < 146), but the markets seems prepared that FX interventions might follow later on in case of renewed weakness towards the 150-area (where the MoF intervened back in October). On Tuesday, Finance Minister Suzuki already said that he had been watching market trends with a sense of urgency. EUR/GBP is going nowhere today, changing hands around 0.8540.
News & Views:
The Norwegian central bank raised its policy rate as expected by 25 bps to 4%, the highest level since end 2008. Governor Ida Wolden Bache said that the policy rate will be raised further in September is the economy evolves as currently expected. Activity in the Norwegian economy remains high, and the labour market is tight. At the same time, the policy rate is having a tightening effect, and pressures in the economy are easing. Consumer price inflation has edged down but remains high and markedly above the target. Underlying inflation has remained elevated. If the krone proves to be weaker than previously projected or pressures in the economy persist, a higher policy rate than signalled in June (4.25%) may be needed to bring down inflation. Norwegian swap rates rose by 6-7 bps across the curve today. The Norwegian krone fails to profit and remains weak at around EUR/NOK 11.50.
The top US official for the Indo-Pacific region, Kurt Campbell, said that US President will tomorrow announce a trilateral agreement with Japan and South Korea to boost deterrence against North Korea and China. The deal includes a leader-level hotline, annual military exercises an annual summit and the creation of a mechanism to share intelligence. The “Camp David princimples” will be presented together with Japanese PM Kishida and South Korean President Yoon Suk Yeol.
