With the Pacific G10 Macro Rates Team
Last week little changed for the rates markets. The previous weeks supply of US 3, 10 and 30y treasuries was bedded down with their yields and curve ending lower, and new all-time highs for the tech indices, pushed the boundary of “what is an acceptable P/E ratio?”.
Still no progress between Congress and White House on the next relief package, and the Democratic Convention set the tone of the upcoming US election as saving the soul of the nation. The Fed minutes backed away from providing explicit September forward guidance but showed a willingness to provide greater clarity to the likely path of rates at “some point”. Probably to be seen after their first ever (18mth long) review of strategy, policy tools and communications due soon. YCC was discounted again as providing only modest benefits, but stills remains an option for the future.
US: August Preliminary PMI’s for manufacturing and services data came in above expectations. Headline Manufacturing PMI printed at 53.6 MoM (52 exp., 50.9 prev.) and Services PMI was at 54.8 MoM (51 exp., 50 prev.). July Existing home sales were stronger too coming in at 5.86m, vs 5.41m exp. And 4.70m prior. Against this initial Jobless Claims for the week (Aug 15th) surprised to the high side breaching the 1m level coming in at 1.106m vs a 920k exp. And a 971k prev. this was after recently trending down, and threw doubt on the momentum of job gains.
Canada: CPI in July increased by only 0.1% YoY (0.5% exp., 0.7% prev.) but Retail Sales for Jun Ex Auto MoM was stronger at 15.7% (14.9% exp., 10.6% prev.). Canada’s Finance Minister Morneau resigned due to differences with Trudeau about further fiscal stimulus.
Eurozone: Generally weaker PMI’s with Markit/BME Germany Composite PMI 53.7 (55 exp., 55.3 prev.) and Markit France Composite PMI 51.7 (57 exp., 57.3 prev.). Inflation depressed by the German VAT cut with EC CPI MoM -0.4% (-0.3% exp., -0.3% prev.) and CPI Core YoY 1.2% (1.2% exp., 1.2% prev.)
Sweden: . The only data of note was the stronger July unemployment Rate 8.9% (9.8% exp., 9.8% prev.)
Norway: No major economic data.
Q2 GDP marginally weaker at SA QoQ -7.8% (-7.5% exp., -0.6% prev.) and June Core Machine Orders very weak MoM -7.6% (2.0% exp., 1.7% prev.)
Data continued coming in above the expectations. A strong July CPI Core YoY 1.8% (1.2% exp., 1.4% prev.) caught the market by surprise. Along with July Retail Sales Ex Auto Fuel YoY 3.1% (1.5% exp., 1.7% prev.) and Markit/CIPS UK Composite PMI 60.3 (56.9 exp., 57 prev.). The only dampener being Aug GfK Consumer Confidence -27 (-25 exp., -27 prev.)
Australia: RBA minutes showed little beyond expressing worry about Victoria shutdown effect.
New Zealand: Another domestic bank introduced NIRP into their 2021 forecast.
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