Markets
The dust settled somewhat after Fed chair Powell’s “the time has come” speech in Jackson Hole prompted an almost 9 bps decline in US yields last Friday. The front end of the curve outperformed, drawing comfort from Powell implicitly leaving all options open, including supersized (eg. 50 bps) rate reductions in September or later. But with more than 100 bps of cuts currently priced in for the remainder of 2024, there’s little spare room for US money markets to add to an already pretty aggressive positioning for the time being. US yields gapped lower in an Asian reactionary move. Their attempt to recover during European dealings was then hindered a bit by the release of US July durable goods orders. They came in double the 5% estimate for headline sales (Boeing aircraft orders) but that beat was offset by both a miss for the current and a downward revision for the previous month’s reading in several core gauges. Current changes vary between -0.2 (2-yr) and +1.5 (30-yr) bps, preserving the recent support levels (August lows, ex. August 5). German yields painted a similar intraday picture where opening losses were swapped for gains ranging between +2.5 and 3.4 bps across the curve. Germany’s August Ifo business confidence covered the European eco calendar but its impact was negligible. Aligning with last week’s PMI’s, the release suggested an ongoing loss of economic momentum, be it less than feared. The headline index retreated from 87 to 86.6 with both the current assessment (86.5) and the expectations component (86.8) printing a further marginal decline from the July edition. The economic malaise unsurprisingly was the worst in manufacturing but the business climate in the services sector deteriorated too. Trade sentiment improved slightly while the construction index was unchanged.
Oil prices displayed some of the biggest moves in other markets today. Brent rallied for a third day straight on supply/geopolitical concerns. A barrel currently sells for $81.3 compared to last week’s recent lows around $76. Sticking on the commodity market, gold is on track for the highest close on record ($2 526 per ounce). Equity markets shifted into lower gear with looming record highs in the US (eg. S&P 500) all but erasing any memories to the brutal but short-lived sell-off early August. The Japanese yen is one of the better performers on currency markets today. USD/JPY eased towards the 144 big figure, EUR/JPY is trading around 160.77. EUR/USD’s inability to push beyond 1.12 triggered some minor return action back to 1.116 in technically insignificant trading. We take sterling’s pretty sharp intraday swings with a pinch of salt against the backdrop of UK markets being closed for a summer bank holiday (EUR/GBP around +0.845).
News & Views
Belgian business confidence deteriorated slightly in August, dipping from -12.3 to -12.6 (vs -12.7 expected), the lowest level since February. The overall synthetic smoothed curve, which reflects the underlying economic trend, reached a turning point and dipped slightly for the first time in seven months. A new weakening of the manufacturing industry (-16.5 from -14.9) was mainly due to a sharp deterioration in employment expectations and, to a lesser extent, demand expectations. Trade industry confidence rose significantly (-22.2 to -16.6) because of a clear upward revision in demand expectations and even more so in intentions of placing orders with suppliers. Business-related services confidence stabilized (0.4 from 0) while building industry confidence improved from -9.6 to -7.5. On a downbeat note, business leaders expect demand to ease in the coming three months just like in the services sector. General conditions for access to bank credit eased for the third quarter in a row, according to the July 2024 quarterly survey on firms’ perception of lending conditions.
Minutes of the previous Swedish Riksbank meeting reveal that the central bank discussed a larger (50 bps) rate cut at last week’s meeting. The support for a second 25 bps rate cut was fairly balanced together with updated guidance of 2 to 3 additional rate cuts this year. Governor Thedeen openly stated that he’s willing to err on the side of making policy less restrictive at all three remaining meetings. That scenario is currently discounted in Swedish money markets with some even positioning for a 50 bps rate cut at one of the meetings. The Swedish krone weakened marginally from EUR/SEK 11.38 to 11.43.
Graphs
US 2-yr yield continues to struggle. Recent (August) lows hold for the time being though
Brent oil ($/barrel) extends recent rebound on supply/geopolitical concerns
GBP/USD: that’s what you call a “triangle break”
EUR/SEK: Swedish crown loses some territory after Riksbank min
 rate reductions in September or later. But with more than 100 bps of cuts currently priced in for the remainder of 2024, there’s little spare room for US money markets to add to an already pretty aggressive positioning for the time being. US yields gapped lower in an Asian reactionary move.){kind=link}