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G10 Macro Rates Market Analysis – Weekly Review – 10th August 2020

Monday, August 10, 2020

With the Pacific G10 Macro Rates Team 
The equity rally continued unabated last week, despite the struggle to reach an agreement in the US to extend fiscal support. Risk assets were supported by stabilizing COVID-19 cases and continued improvements in economic data. The S&P 500 was up 2.3%, the EuroStoxx up 2.5% and the Nikkei up 2.9%, Emerging Markets equities performed strongly apart from Chinese markets that struggled amid deteriorating geopolitical environment.

Interest rates market were flat on a week with very little realised volatility. Dollar decline stalled last week, however the real yield and gold march continued with the former rallying further 2.5bps to -1.05% on 10y TIPS and the later higher by 2.7%.

North America
US: Data was consistently stronger last week. The ISM surveys registered significant improvements in Services (58.1, 55 exp. and 57.1 prev.) and Manufacturing (54.2, 53.6 exp. and 52.6 prev.) in July. The details of the manufacturing report were strong as well, New Orders at 61.5 and Prices Paid at 53.2. However, the employment component was at 44.3 indicating bleak outlook despite the improvement from 42.1. Factory Orders in June increased by 6.2% (5% exp., 7.7% prev.). Employment numbers continued improving ahead of expectations. Continuing Jobless claims dropped to 15.85mil – the lowest since early April, while initial claims dropped to 985k. The employment report for July showed 1,763k jobs created with the unemployment rate dropping to 10.2% (10.6% exp., 11.1% prev.)

Canada: The main data release last week was the employment report. Similar to the US, the Canadian economy continues re-building jobs at a high speed with 418.5k new jobs in July (380k exp., 953k prev.) and the unemployment rate lower at 10.9% (11% exp., 12.3% prev.).

Eurozone: Factory Orders increased by 27.9% MoM in June, far outside the individual forecasts that were in a range of 2%-20%. Industrial Production continued recovering in June increasing 8.9% MoM (8.2% exp., 7.4% prev.). Both Factory Orders and Industrial production remain -11% YoY. In France, Industrial Production increased 12.7% MoM in June (8.4% exp., 19.9% prev.) and Manufacturing Production was 14.4% higher (13% exp., 22.2% prev.). In Italy, PMIs for July indicated continued improvements as well with Manufacturing at 51.9 (51.2 exp., 47.5 prev.) and Services at 51.6 (51.4 exp., 46.4 prev.). Industrial production was 8.2% higher in June (5% exp., 41.6% prev.). Spanish July PMIs were a bit more mixed with Manufacturing at 53.5 (52.3 exp., 49 prev.) and Services at 51.9 (52.3 exp., 50.2 prev.). Industrial Production increased 14% MoM in June (10% exp., 14.3% prev.)

Sweden: July Manufacturing PMI was stronger at 51 (50.5 exp., 47.6 prev.), while key GDP data came out weaker with -8.6% decline in 2Q GDP (-8% exp., -0.3% prev.).

No major economic releases last week. Vehicle sales were down -20.4% YoY in July, while Household Spending in June was only down -1.2% YoY (-7.8% exp., -16.2% prev.). The Leading Index was higher in June at 85 (84.9 exp., 78.4 prev.) and Coincidence Index increased to 76.4 (77.2 exp., 73.4 prev.)

New Car Registrations were 11.3% higher YoY in July. The Bank of England left interest rates unchanged and decreased the amount of QE. However, MPC disappointed financial markets that were pricing short-term rates down to -10bps by indicating that they do not consider negative rates to be a viable policy in the near future. Negative rates, QE, yield curve control and forward guidance remain in the tool-kit and might be used in the future to stimulate the recovery. On the economic front, the MPC now forecasts less severe slow-down in 2020 followed by a slower recovery with the economy reaching its pre-COVID level in late 2021.

Australia: The RBA meeting was the highlight of last week. The Central Bank restarted QE after two months hiatus as 3y yields persistently stayed above the 0.25% target, however other policy details were not changed. Retail Sales continued thier recovery in June with 2.7% MoM increased (2.4% exp., 16.9% prev.).

New Zealand: House Prices were 7.5% higher YoY in July. Employment data for 2Q came in very positive, Unemployment rate dropped to 4% from 4.2% (5.6% exp.) with 1.2% YoY increase in employment.

For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below 

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IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation.

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