Markets
It was a slow but constructive start of the week. The economic calendar had little to offer with the exception of the German Ifo indicator. Confidence fell in June from May with the headline series easing from 89.3 to 88.6. Both the current assessment (88.3) and the expectations (89.0) component fell short of expectations. More or less confirming last week’s (skewed) PMI’s, markets quickly set the downside surprise aside. A mildly constructive atmosphere dominated instead, lifting European equities about 0.80% higher. There’s a noteworthy outperformance of the car sector (> 2%). It followed news over the weekend that the EU and China have agreed to start talks over the bloc’s recently announced EV tariffs. It eases concerns for Chinese retaliatory measures against European carmakers. Core bond yields trade more or less flat, Bunds marginally underperforming Treasuries. German yields rise <2 bps across the curve. Both peripheral and the French spread vs Germany’s 10-yr yield ease a few basis points ahead of the June 30 snap elections (first round). Treasury yields change less than 1 bp in a daily perspective.
The Japanese yen drew most attention on currency markets. Ongoing JPY weakness triggered FX interventions around USD/JPY 160 end April and the beginning of May. Less than two months later, the pair is again closing in on these levels, with the latest acceleration coming on the back of dollar strength. Japan’s finance (vice-)minister this morning reiterated readiness to act again. USD/JPY today suddenly dropped from around 159.8 to 158.8 for no particular reason. We do recall a move out of thin air happening on Friday, April 26 as well (though it was a larger one back then). On Monday, April 29, the first round of interventions took place. The difference, for now, is that USD/JPY is slightly down for the day, as are most other dollar cross rates. EUR/USD rises from just south of 1.07 to 1.0738. The trade-weighted index eases towards 105.47. EUR/GBP continues to bottom out with the Bank of England having protected the pair’s downside better. The combination is currently changing hands around 0.8467, up from a daily low of 0.845.
News & Views
The June industrial trends survey released by the Confederation of British Industry (CBI) showed export orders deteriorating in June, falling from -27% to -39%, the weakest performance since February 2021 and significantly falling below the long-run average of -18%. Total orders on the other hand improved from -33% to -18% but also remain below average. Output volumes were broadly unchanged in the three months to June (+3%) following an increase in the quarter to May (+14%). Notably, only four out of 17 sub-sectors saw output growth. Growth was noted in the food, drink, and tobacco, motor vehicle and transport, and plastics and furniture and upholstery sub-sectors. Looking at the next three months, the outlook suggested a modest rise in output of +13%. Stocks of finished goods (+14%) are sufficient to meet expected demand. CBI lead economist Jones said that it’s encouraging to see that manufacturing remain confident the economy is heading in the right direction with the survey suggesting a broadening out over summer. Soft orders are a note of caution. Expectations for average selling prices accelerated from 15% to 20%.
Belgian business confidence stabilized in June (-11.1 from -11). This stability masks contrasting developments in the sectors surveyed, with a strong improvement observed in business-related services (1.4 from -2.1; mainly more favorable activity expectations) but a fall in confidence in trade (-21.5 from -17.4; more negative employment expectations and intentions of placing orders with suppliers), building (-11.4 from -10.3) and manufacturing (-13.1 from -12.7; worse demand expectations and a more negative assessment of total order books and stock levels). Last week, Belgian consumer confidence improved from -7 to -1, the second best level since February 2020.
Graphs
USD/JPY nears 160, triggering a new series of verbal (for now) interventions from Japanese finance officials
EuroStox50: carmakers among the best performers as China and EU agreed to start tariff talks
EUR/GBP extends its recent bottoming out process and has the BoE to thank for it
EUR/CZK eases after touching highest level in a month last Friday as it goes into the CNB’s (hawkish) cut on Thursday
minister this morning reiterated readiness to act again. USD/JPY today suddenly dropped from around 159.8 to 158.8 for no particular reason.){kind=link}