Positive developments in treatments of Covid-19 disease once again showed a catalyst for broad market optimism yesterday in an otherwise inevitable session. EMU stocks obliterated Friday’s PMI – driven losses and rose more than 2%. WS eked out wins up to 1.35%. Oil prices continue to hit key resistance near $ 45 / b with recent price increases partly driven by production stoppages as storms threaten the US coast. The intraday gains of gold faded as the USD rose again (cf. Infra). Core bonds traded volatile, but ended the day lower as USTs underperformed. The US yield curve bears amplified with interest rate changes ranging from 0.9 bps (2-year) to 2.5 bps (10-year). German yields rose 1.6 bps (10-year) to 2 bps (30-year). The peripheral spread narrowed marginally as Greece and Italy overtook (both -2 bps). The dollar was initially on the defensive. EUR / USD touched an intraday high of 1,185 before heading south (dollar strength) along with gold prices and USTs (interest rates up) to close at 1.1788. DXY printed a mirror image and closed a little higher at the end (93.3). The USD / JPY ended just at 106. Sterling extended Friday’s loss, triggered by a disappointing result of another round of Brexit. EUR / GBP rose slightly from 0.901 to 0.902.
Risk sentiment remains relatively positive during Asian trades. A call between U.S. and Chinese trade negotiators discussing the trade deal did the trick. Both sides are making progress in implementing the agreement and are committed to implementing it in full. Investors welcome the constructive tone of the call at a time when tensions between the US and China have been building again in recent weeks. Shares rise with South Korea (+ 2.2%) exiting after solid consumer confidence. Core binding is oriented downwards. NZ interest rates continue to explore new lows after strong bond sales in 2027. The dollar edge is lower for most peers. USD / CNY is down 6.91. EUR / USD settles above 1.18 for the time being. USD / JPY is nowhere near 106.
Today’s economic calendar contains some interesting data, including consumer confidence from August in the US and Germany’s Ifo indicator. Both are expected to print marginally higher compared to the measurements in July, but we see risks tipping downwards, especially for the latter after the poor PMI reading last week. However, we do not expect them to have a greater market impact. Stock markets are likely to continue to reach the sky. The current circumstances in theory damage core bonds. US10y interest rates are set to trade in the upper half of the sideways 0.56% / 0.74% trading range. The real dividend over 10 years stabilizes close to -1%. However, the forthcoming (dovish?) Speech by Fed Chairman Powell helps protect the core gangs’ disadvantages. We remain cautious about the dollar for the same reason. EUR / USD may be trending higher within the established trading 1.17 / 1.19 series, but we do not expect technically significant moves to happen soon. The British pound could benefit from the ongoing strong risk mood, but the big jump higher is probably not due until there are signs of a breakthrough in the Brexit negotiations.
U.S. Trade Representative Lighthizer and Treasury Secretary Mnuchin held a scheduled call with Chinese VP Liu He. Both parties see progress in the first stage of trade and are committed to taking the necessary steps to ensure the success of the agreement. In their call, it addressed the steps taken by China, including significant increases in US product purchases as well as future actions needed to implement the agreement. The major U.S. stock indexes yesterday added 0.6% to 1.35% with futures pointing to further gains.
The Australian Bureau of Statistics issued a new publication, weekly wage jobs and wage data (week ending August 8). Nationally, wage jobs were around 4.9% in mid-March, with total wages falling by 6.2% over the same period. The impact of the Victoria State shutdown began to show in data from the month running up to August 8, showing wages down 2.8% in the state. AUD / USD hovers in the high 0.7150 region.