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G10 Macro Rates Market Analysis – Weekly Review – 29th June 2020

Monday, June 29, 2020

With the Pacific G10 Macro Rates Team 
Fear and pessimism returned to the financial markets last week with risk assets underperforming against the safe havens. Despite the positive data coming out from the G10 economies sending the Citi Economic Surprise index to the highest levels since early 2018. Fears of a second wave in the US were increasing all week as new COVID-19 cases continued to soar in the Southern States.

In response some North Eastern States introduced quarantine rules for people arriving from other states. Globally new COVID-19 cases continued increasing (partially due to the increased testing) with regional outbreaks in Japan, Portugal, Germany and other countries. The S&P 500 was down just over 1.5%, the WTI lost 3%, while credit spreads widened.

Yield curves flattened with 30y US Treasury yield sliding 10bps lower, in line with other markets. A new 100y bond issued by Austria on Wednesday at a yield of 0.88%, but due to strong demand it was trading at 0.7% by the end of the week. At the same time, volatility in the FX and Rates markets remained subdued with implied volatilities drifting lower.

North America
US: Regional Fed surveys were all above expectations last week, the Chicago Fed Activity Index for May came in at 2.61 (-10 exp., -17.89 prev.), the Richmond Fed Manufacturing index came at 0 (-2 exp., -27 prev.) and the Kansas Fed Manufacturing index at 1 (-1 exp., -19 prev.). Durable Goods Orders increased 15.8% in May above the expectations of 10.5% (-18.1% prev.).

Housing data in May was mixed with stronger new home sales and weaker existing home sales. Personal Spending increased 8.2% in May slightly below the expectation of 9.3% but offsetting April revision up to -12.6%. On the downside, both Manufacturing and Services Markit PMIs slightly missed the expectations with the former at 49.6 (50 exp.) and the latter at 46.7 (48 exp.)

Canada: No important data releases.

Europe
Eurozone: A very positive week from a data perspective. June PMIs in Germany beat the estimates with Manufacturing at 44.6 (42.5 exp., 36.6 prev.) and Services at 45.8 (42.3 exp., 32.6 prev.). The GfK Consumer Confidence was also better than expected at -9.6 (-12 exp., -18.6 prev.) and the IFO survey showed continued improvements in Business Climate and Expectations components, while Current Assessment was just slightly higher.

French PMIs came in above expectations as well, with Manufacturing at 52.1 (46 exp., 40.6 prev.) and Services at 50.3 (45.2 exp., 31.1 prev.). In Italy, Consumer Confidence improved to 100.6 (97.5 exp., 94.3 prev.) with Manufacturing Confidence at 79.8 (80 exp., 71.5 prev.). May Retail Sales in Spain were worse than expected declining -20.2% YoY (-17.6% exp., -31.5% prev.).

Scandinavia: In Sweden, Consumer and Manufacturing Confidence continued improving with the former raising to 84 (77.7 prev.) and the latter increasing to 89.1 (76.4 prev.). Retail Sales in May were 2.4% higher YoY (1.5% exp., -1.4% prev.)

Japan
No important data releases.

UK
Both Manufacturing and Services PMIs came in above expectations, the former at 50.1 (45 exp., 40.7 prev.) and the latter at 47 (40 exp., 29 prev.).

Australasia
Australia: PMIs for June came in significantly better as well, Manufacturing improved from 44 to 49.8 and Services from 26.9 to 53.2.

New Zealand: The RBNZ left interest rates and QE programme unchanged but stressed that they are ready to act if needed in the upcoming meetings. May Credit Card spending was down -21.1% YoY (-49.1% prev.). Consumer Confidence continued its recovery in June moving 7.4% higher after 14.7% increase in May, however, it is still 5-10% below the average.

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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