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G10 Macro Rates Market Analysis – Weekly Review – 13th July 2020

Monday, July 13, 2020

With the Pacific G10 Macro Rates Team 
Chinese equities rallied strongly last week, posting a 7.6% gain. US yields were less impressive, the US 30y rallied over 16bp at one point and there was also a significant flattening of the yield curve. These moves in US yields were despite a very large net issuance of 94bln (estimated) and the previous Friday’s very positive jobs number.

Last week’s jobs, manufacturing, and retail sales data continued to reflect a strong bounce back in the underlying economy. This bounce is catching economists out, as demonstrated by an all-time high in the Citi-Surprise index, which measures the difference between data and estimates. Here the “surprise” is how wrong economists are, maybe that’s not such a surprise to everyone. Normally, strong data would be a cause for celebration. However, as the bounce has started from such a low level there is still a long way to go for the G10 economies to reach data levels resembling normalcy.

North America
US: Very strong jobs data with the non-farm payrolls printing +4.8 million new jobs (3.23m exp., 2.699m prev.) and the unemployment rate dropping to 11.1% (12.5% exp., 13.3% prev.) This job creation has also been reflected in the weekly claims numbers.

Canada: Jobs data is showing strong improvements with the net change in employment at +953k (+700k exp., 290k prev.) and the unemployment rate dropping to +12.3% (+12.1% exp., +13.7% prev.).

Eurozone: Eurozone retail sales were exceptionally strong at +17.8% (15.0% exp., -11.7% prev.) as was Italian industrial production +42.1% (+24.0% exp., -19.1% prev.). French and Spanish Industrial production numbers were also strong with Germany lagging a little.

Scandinavia: Norwegian underlying CPI met expectations at +0.4% (+0.4% exp., +0.1% prev.) and the GDP (Mainland) printed +2.4% (4.3% exp., -4.7% prev.) which is not as strong as the bounce in oil might have suggested but difficult to challenge given the current extremes in data.

Only 2nd tier data this week, but positive nonetheless. Core machine orders, a measure of industrial activity, +1.7% (-5.0% exp., -12.0% prev.) and PPI +0.6% (+0.3% exp., -0.4% prev.)

With little data, the attention was on the chancellor’s 30bln jobs focused stimulus plan. Emphasising the scale of the issue, 8,450 job losses were announced over the course of this week.

Australia: The Reserve Bank of Australia reiterated its stance by keeping both of its target rates unchanged at 0.25% whilst also saying that the downturn had not been as severe as expected. This glimmer of hope was quickly and roundly trampled upon as Victoria state went into partial lockdown.

New Zealand: TCard spending, a measure of retail enthusiasm, printed +16.3% (+15.0% exp.), which is quite exceptional, but still eclipsed by the previous months number of +78.9%

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

Read the Strategy Information Sheet

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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