Bond yields continue to edge higher
It was a reasonably quiet start to the week in markets with the US out on a public holiday. European bond yields edged higher amid rising oil prices – Brent crude is approaching $100 p/b again – while the yen rallied to around Y154 against the dollar, bringing its gains over the past week to circa 4%. Elsewhere in FX, the euro is largely unchanged against the dollar and sterling, trading at about $1.1615 and £0.8580 respectively, and may continue to tread water ahead of Thursday’s ECB meeting, while GBPUSD is also little changed, hovering just shy of $1.3550 this morning.
Government bond yields rose as oil prices continued to move higher and central bank interest rate expectations firmed – the market is back to pricing in about 75bps of hikes from the ECB and Bank of England by June next year – with German and UK yields increasing by 4-5bps across the curve. European equity markets held in well given higher oil prices/bond yields, with the Stoxx Europe 600 ending broadly flat on the say.
GDP growth in the Euro area in Q2 was revised up to 0.6% q-o-q (from 0.4% previously) according to the latest estimate from Eurostat, largely on account of an upward revision to GDP growth in Ireland. Growth over the first two quarters of the year averaged 0.3% a quarter, broadly in line with the quarterly pace of activity in 2025 and also broadly in line with estimates of the economy’s potential rate of growth. On an annual basis, GDP was up 0.9% over the first half of this year, leaving in on track to meet forecasts for full-year growth in 2026.
The latest KPMG/REC survey of labour market conditions in the UK points to the “first broad-based improvement in hiring trends for nearly four years in August”, with permanent placements rising slightly for the first time since late 2022 and temp billings expanding for a fifth month in a row. The survey also notes though that “vacancies are still falling” and employers remain cautious on recruitment given “continued geopolitical uncertainty and elevated borrowing costs.”
Looking at the day ahead, it is fairly quiet in terms of economic data. The main releases are in the US, including the small business optimism index for August and consumer credit for July, while the New York Fed publishes its latest survey of consumers inflation expectations. A number of Bank of England MPC members are scheduled to appear before Parliament’s Treasury Committee.