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G10 Macro Rates Market Analysis – Weekly Review – 28th September 2020

Monday, September 28, 2020

With the Pacific G10 Macro Rates Team 

Interest rate markets were very calm last week with yields on 10y US Treasury bonds trading within 0.05% range whole week.

Equity market weakness (S&P 500 was down over 3% mid-week but closed the week only 0.7% down) did trigger risk-off response in other markets, but volatility was very limited. US 10y Breakeven inflation underperformed declining further from the recent highs and finishing week almost 0.1% lower. WTI started last week 5% down and then gained back half of the loss in correlation with equities. Gold stayed correlated to the inflation expectations in the US and remained weak finishing last week down -4.5%.

Four G10 Central Banks had their scheduled meetings last week. All of them left policy rates unchanged. Apart from Norges Bank in Norway that is talking about rate hikes in 2022, all other Central Banks remain focused on downside risks and indicated that more accommodation could be provided if required.

North America
US: Light week on data front with strong Richmond Fed Manufacturing Index at 21 (12 exp., 18 prev.) and slightly weaker Markit surveys: Manufacturing PMI at 53.5 (53.5 exp., 53.1 prev.) Services PMI at 54.6 (54.7 exp., 55 prev.).

Canada: No tier 1 data.

Eurozone: Data in Eurozone was positive for Consumer Confidence and Manufacturing while Services sentiment has weakened. Manufacturing PMI in Germany increased to 56.6 (52.5 exp., 52.2 prev.) and in France to 50.9 (50.6 exp., 49.8 prev.). Services PMIs dropped to 47.5 (51.5 exp., 51.5 prev.) in France and 49.1 (53 exp., 52.5 prev.) in Germany. IFO Business Climate improved slightly less than expected to 93.4 (93.8 exp., 92.6 prev.) driven by the current assessment and the expectations. Data in Italy mirrored France and Germany with Consumer Confidence at 103.4 (100.8 exp., 100.8 prev.) and Manufacturing Confidence at 92.1 (87.4 exp., 86.1 prev.).

Sweden: Riksbank left interest rates unchanged and re-iterated that negative rates are not appropriate at the current time but remain on the table for future stimulus.

Norway: Norges Bank left interest rates unchanged. The message was balanced as the forecast for the first hike was brought slightly forward while longer run yields were lowered.

September PMIs showed small improvements with Manufacturing increasing from 47.2 to 47.3 and Services from 45 to 45.6.

In line with Eurozone countries, Manufacturing PMI came in above expectations at 54.3 (54 exp., 55.2 prev.), while Services PMI disappointed at 55.1 (55.9 exp., 58.8 prev.).

Australia: Both Services and Manufacturing PMIs improved since August with the former increasing from 53.6 to 55.5 and the later from 49 to 50.

New Zealand: RBNZ left interest rates unchanged with little changes to their statement. August Credit Card Spending dropped -5.8% MoM.

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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