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G10 Macro Rates Market Analysis – Weekly Review – 27th July 2020

Monday, July 27, 2020

With the Pacific G10 Macro Rates Team 
The summer markets settled in last week, helped by the 2-day holiday in Japan originally scheduled to coincide with the beginning of the Olympic Games in Tokyo. Equities finished the week flat to slightly lower, the yield on 10y Treasury Bonds was 0.05% lower on a week with little volatility in other G10 Government Bonds markets. Geopolitical tensions between the US and China triggered risk-off moves towards the end of the week, but the market reaction remained muted.

The EU managed to agree on the EUR 750bn recovery fund, comprised of EUR 390bn grants and EUR 360bn loans. The final agreement missed some key details on the conditions for the disbursement of the grants that will be agreed upon later. Nevertheless, it is a very important step towards a closer fiscal union and agreed at a relatively early stage.

North America
US: Data for July started weakening, indicating some slow-down in economic recovery driven by the re-imposition of the restrictions in several States. The Chicago Fed activity index for June came in at 4.11 (4exp., 3.5 prev.). July numbers were slightly weaker though, the Kansas Fed Activity Index was at 3 (5 exp., 1 prev.) and Markit PMIs were slightly below the expectations with 51.3 Manufacturing (52 exp., 49.8 prev.) and 49.6 Services (51 exp., 47.9 prev.).

Canada: The Jun CPI report came in way ahead of expectations, as the headline number rose 0.7% YoY (0.2% exp., -0.4% prev.) and all three core measures printed above expectations.

Europe
Eurozone: Data was stronger across the board as the European economy continues to recover from severe lockdown measures imposed in key countries. The GfK Consumer Confidence in Germany rose to -0.3 (-4.5 exp., -9.4 prev.). PMIs came above the expectations in all countries, Manufacturing in Germany was at 50 (48 exp., 45.2 prev.) and 52 in France (53 exp., 52.3 prev.), while Services were 56.7 in Germany (50.5 exp., 47.3 prev.) and 57.8 in France (52.4 exp., 50.8 prev.).

Scandinavia: Unemployment in Sweden increased to 9.2% in June (8.7% exp., 8.5% prev.). Unemployment in Norway in May increased to 4.6% (4.3% exp., 4.1% prev.).

Japan
The June CPI report came broadly in line with expectations, with the headline number rising 0.1% YoY. PMIs numbers for July improved but stayed below the 50 level that separates contraction from expansion.

UK
A number of strong data prints came out last week, supported by the continued easing of restrictions over the last two months. June Retail Sales (excl. fuel) were strong increasing 13.5% MoM (7.9% exp., 10.6% prev.) and July PMIs were all stronger as well with Manufacturing at 53.6 (52 exp., 50.1 prev.) and Services at 56.6 (51.5 exp., 47.1 prev.)

Australasia
Australia: CBA July PMI numbers were strong increasing to 53.4 for Manufacturing (51.2 prev.) and to 58.5 for Services (53.1 prev.)

New Zealand: Credit Card spending increased 14% in June (59.4% prev.) and are now only down -9.2% YoY in line with other countries.

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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