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G10 Macro Rates Market Analysis – Weekly Review – 17th August 2020

Monday, August 17, 2020

With the Pacific G10 Macro Rates Team 
Last week we observed a rare comeback of the traditional negative correlation between fixed income and equity markets. Driven by increased government bond issuance and stronger inflation prints across the globe, interest rates went higher (bond prices lower) for most of the week, while equities performed strongly.

Tensions between the US and China continued, while the US Congress and the White House struggled to even re-start conversations on the next stage of the relief package. Data was mostly stronger, but there are signs that re-imposed restrictions are taking their toll on the consumer confidence and economic performance. Markets might be looking through the near-term potential slowing of data, or could be vulnerable to a setback, given the extent of the recent moves in inflation, yield curves and equities.

North America
US: PPI and CPI data came in well above expectations. Headline PPI printed at 0.6% MoM (0.3% exp., -0.2% prev.) and CPI was at 0.6% MoM as well (0.3% exp., 0.6% prev.). Importantly ex Food and Energy numbers were strong 0.5% MoM for PPI and 0.6% MoM for CPI. Other data was mixed. NFIB Small Business Optimism went slightly down to 98.8 from 100.6, Retail Sales were below expectations at 1.2% MoM (2.1% exp.) with Control Group above at 1.4% (0.8% exp.), Capacity Utilisation was strong at 70.6% (70.3% exp., 68.5% prev.). Consumer Sentiment improved slightly, driven by expectations with the Sentiment Index at 72.8 (72 exp., 72.5 prev.)

Canada: No key data last week. Housing starts in July were better than expected at 246k vs. 205k expected after 212k in June. Manufacturing Sales in June increased by 20.7% (16.4% exp., 11.6% prev.).

Eurozone: ZEW Survey for August was mixed, with Expectations (71.5 vs. 59.3 prev.) continuing running ahead of Current Situation (-81.3 vs. -80.9 prev.). 2Q Unemployment rate in France was better than expected improving to 7.1% from 7.8% (8.3% exp.).

Sweden: CPI for July came in much stronger than expected with 0.2% MoM increase against the expectations for a -0.1% drop. CPIF YoY stood at 0.5% vs. 0.2% expected.

Norway: CPI report showed stronger than expected inflation in July with 0.7% MoM increase vs. the expectations of 0.5%. Average Monthly Earnings increased 4.2% YoY in 2Q, but Consumer Confidence dropped to -6.6 from -3.4.

No major economic data.

Data continued coming in above expectations. Unemployment rate was unchanged at 3.9% against expectations for an increase to 4.2%. Industrial Production increased 9.3% MoM (9% exp.), Manufacturing Production increased by 11% MoM (10% exp.) and Construction Output increased 23.5% (15% exp.) in June. Index of Services improved slightly lower than expected at 7.7% MoM (8% exp.). 2Q GDP dropped -20.4% QoQ slightly better than expectations for -20.7% drop.

Australia: The lag in the economic data makes it hard to see the extent of damage due to the recently re-introduced lockdown measures. However, data covering July was much better than data for August. Employment increased by 115k in July (30k exp., 228k prev.) and NAB Business Conditions improved to 0 in July from -8 in June. For August, Consumer Confidence dropped -9.5% from July.

New Zealand: RBNZ meeting was the key event last week. They proved to be one of the most dovish Central Banks currently in the G10. QE was increased more than expected and probability of negative rates was highlighted again. Economic data was mixed, Manufacturing PMI improved to 58.8 in July from 56.2 in June. ANZ Business Confidence for August deteriorated to -42.4 from -31.8 previously.

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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