Markets
Markets spent most of their time awaiting corporate (Nvidia results after-market) and economic (European inflation numbers from tomorrow on and US PCE deflators on Friday) events today. Core bond yields drifted a few basis points lower in technically irrelevant trading during European trading hours, both in the US and Europe. They then fully recovered in the former. The 2-yr yield is nonetheless shedding 3.4 bps following a benchmark change after yesterday’s auction. The smooth sale bodes well for tonight’s $70bn 5-yr one. German yields were still down between 1.8 (2-yr) and 4.5 bps (30-yr) at the time of writing, slightly underperforming vs swaps. The ECB’s July lending survey showed that the drag of high interest rates on lending has eased somewhat further, implying no short-term need for swift monetary easing. The annual M3 growth rate stood at 2.3%, the same as in June. Among the borrowing sectors, loans to households picked up slightly from 0.3% to 0.5%. This uptick was partially offset by loan growth to companies easing from 0.7% to 0.6%.
The dollar captures most of the attention on currency markets by showing some strength after a period of Fed-induced weakness. Nothing changed to the dire technical picture though. The trade-weighted index (DXY) narrowly escaped from a break below the end-2023 correction low by moving from 100.57 to 101.07. EUR/USD dipped from 1.1184 towards the 1.11 big figure. The EUR/GBP cross rate continues down the same path with the pair setting an intraday low of 0.841 before paring some losses to 0.842 currently. Governor Bailey’s “the job is not completed” speech at Jackson Hole put the BoE in stark contrast with the Fed and ECB and that’s clearly still leaving some marks on the British currency. European shares outperform (EuroStoxx50 +0.6%) those in the US with market tension building ahead of the Nvidia earnings. The single stock has the potential to lift the likes of the S&P500 towards new record highs.
News & Views
In an interview with Polish business newswire PAP, national bank of Poland MPC member Gabriela Maslowska was quoted that she didn’t exclude the possibility of an NBP rate cut in 2025. Currently there is still a long way to go for that to happen as the NBP continues to monitor changes in the inflation and macro-economic growth forecast. Keeping this caution into account, Maslowska indicated that the NBP still will reacted appropriately when GDP growth and inflation would be lowered at the same time. Aside from the domestic economic developments, a too large disparity with the eurozone and the US could cause large and unfavourable fluctuations in the zloty exchange rate. The comments of Maslowska come as other MPC members, including from governor Glapinski, recently had a less hawkish tone suggesting that the debate on rate cuts might be looming on the horizon. The NBP shifted to a prolonged pause after cutting the policy rate in September (75 bps) and October (25 bps) last year. The zloty recently met resistance in the EUR/PLN 4.25 area and today weakens further to test the EUR/PLN 4.30 area.
The monthly German IFO employment barometer in August declined for the third consecutive month, indicating that German companies are turning more cautious on hiring. The index declined from 95.3 to 94.8. According to IFO’s head of survey’s “The lack of orders is causing companies to put the brakes on hiring.” Especially in manufacturing the barometer fell noticeably as more companies are considering cutting jobs. The same applies to trade. In the construction industry employees are to be retained despite the severe crisis. A positive hiring trend only remains in place among service providers, in particular in the IT sector and in tourism.
Graphs
Trade-weighted dollar index (for now) narrowly escaped from a technical break lower.
EUR/PLN: zloty takes note of increasing amount of MPC members raising possibility of a 2025 cut
EUR/PLN: zloty takes note of increasing amount of MPC members raising possibility of a 2025 cut
Nasdaq (and other US indices) anxiously awaiting the results of a single, market-moving stock: Nvidia
 and economic (European inflation numbers from tomorrow on and US PCE deflators on Friday) events today. Core bond yields drifted a few basis points lower in technically irrelevant trading during European trading hours, both in the US and Europe. They then fully recovered in the former. The 2-yr yield is nonetheless shedding 3.4 bps following a benchmark change after yesterday’s auction.){kind=link}