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G10 Macro Rates Market Analysis – Weekly Review – 20th July 2020

Monday, July 20, 2020

With the Pacific G10 Macro Rates Team 
The week started with good Chinese GDP data (+3.2% vs +2.4% exp., -6.8% prev.) this was stronger than expected but it is still a long way from the 5% to 6% target. Inflation data was also released from several areas and was muted at best. With participants of the view that significant economic slack will persist for some time it is difficult to imagine the inflation data changing dramatically over the coming months.

Also, the Canadian, Eurozone and Japanese central banks met and left interest rates unchanged but mentioned forward guidance – the first step towards yield curve control. The White House claimed “science was standing in the way” [of policy]. Given the way the current White House is run, the surprise is that anything stands in the way. None of the above, however, galvanised interest rate markets one way or another. So, it seems, summer markets are here.

North America
US: CPI Ex Food and Energy YoY printed at +1.2% (+1.1% exp., +1.2% prev.) Inflation expectations were stuck at +3.1% (+2.8% exp., +3.0% prev.), this will reassure the Federal Reserve.

Canada: The BoC left interest rates unchanged, at 0.25%. They mentioned forward guidance was now the thing to be watched and that QE would continue until mid-2022.

Eurozone: The ECB left interest rates and their QE program unchanged. They saw risks to growth on the downside and forward guidance was also emphasised, with economic slack remaining until mid-2022. The ECB president continued her pressure on the need for fiscal stimulus, which was obviously targeted at the heads of state meeting over the weekend. Eurozone CPI printed at YoY +0.8% (+0.8% exp., +0.8% prev.), the ECB’s target is “close, but below 2%”, so, there is a long way to go before this measure returns to target.

Scandinavia: Sweden released core inflation – CPIF Excl. Energy YoY +1.3% (+1.1% exp., 1.2% prev.) The Riksbank’s target is “around 2%”, so they also have a long way to go.

The BoJ and left interest rates and QE unchanged. This has been business as usual for a while now.

Monthly GDP was not as strong as expected (MoM) +1.8% (+5.5% exp., -20.4% prev.) however industrial, manufacturing and services all posted positive numbers. Core CPI (YoY) was muted at +1.4% (+1.2% exp., +1.2% prev.)

Australia: Consumer and business confidence numbers were released and were consistent with an economic bounce. Although the data was from before the renewed lockdown period.

New Zealand: Published Q2 CPI at +1.5% (+1.3% exp., +2.5% prev.)

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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