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G10 Macro Rates Market Analysis – Weekly Review – 21st September 2020

Monday, September 21, 2020

With the Pacific G10 Macro Rates Team 

Last week was filled with Central Bank action, three out of the four biggest developed markets’ central banks had their scheduled meetings after ECB met last week.

Unsurprisingly, the Bank of Japan (BoJ) didn’t make any changes to their short-term rates an QE. US Fed and Bank of England (BoE) both changed their messages. The former committed to overshoot a 2% inflation target to compensate for past underperformance, without providing any concrete details of the process. Updated projections first time included numbers for the year 2023 for the first time. Policymakers expect inflation to reach 2% by the year-end 2023 and in line with their new guidance to keep interest rates unchanged at 0%. The BoE in turn grabbed headlines by announcing further preparations for negative interest rates in 2021, driving pricing for more interest rate cuts, with full -25bps cut priced in by mid-2022.

Financial markets were quiet last week with the S&P broadly unchanged, the US 10y yields were up by 0.03%, and WTI crude went back above $40 per barrel.

North America
US: Sentiment data was strong last week with Empire Manufacturing Index at 17 (6.9 exp., 3.7 prev.), Philadelphia Fed Business Outlook 15 (15 exp., 17.2 prev.) and University of Michigan Consumer Sentiment at 78.9 (75 exp., 74.1 prev.) with both current conditions and expectations above the estimates. August retail sales were slightly disappointing as Control Group dropped -0.1% (0.3% exp., 1.4% prev.). Initial and Continuing Jobless Claims continued improving as well with the later dropping under 13mil for the first time since April.

Canada: CPI report was the highlight of last week. The three core measures that BoC tracks came in at 1.7% on average, in line with expectations. July Retail Sales slightly disappointed at 0.6% MoM (1.0% exp., 23.7% prev.) and Existing home sales for August were slightly weaker than expectations as well at 6.2% (8.0% exp., 26.0% prev.).

Europe
Eurozone: German ZEW index was stronger in September with both Current Situations and Expectations coming in above forecasts. The former was at -66.2 (-72 exp., -81.3 prev.) and the later at 77.4 (69.5 exp., 71.5 prev.). Bank of France Sentiment index for August was strong at 106 (100 exp., 99 prev.).

Sweden: August Unemployment Rate was at 9.1% (9.2% exp., 9.2% prev.).

Norway: No tier 1 data.

Japan
Inflation in August was close to flat in line with expectations.

UK
August CPI report was hard one to forecast due to Eat Out to Help Out discounts at the restaurants. CPI surprised to the upside with -0.4% MoM decline (-0.6% exp., 0.4% prev.). Retail Sales were stronger in August at 0.6% MoM (0.4% exp., 2% prev.). Employment change in July wasn’t as weak as forecasted with -12k 3M/3M decline versus the expectations for a -118k drop.

Australasia
Australia: Employment report for August showed strong employment growth for part-time (+75k) and full-time jobs (+36k). The combined growth of +110k far outstripped the expectations of -35k decline. As a result, unemployment rate was also significantly below the expectations at 6.8% vs. 7.7% forecast.

New Zealand: GDP report for 2Q was slightly above expectations showing -12.2% QoQ contraction (-12.5% exp., -1.6% prev.) and -12.4% YoY contraction.

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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