Bonds surge

Some weaker than expected US data last week spurred a continued sell off in equities with the S&P 500 ending the week down over 2% – and losing 21% in the first half of the year – despite some gains from a late rally on Friday. Bonds surged with US 10-year yields down circa. 25bps for the week to just under 2.9%

Sterling lost ground to the dollar and the euro last week down to $1.20 and 86.5p respectively for a time on Friday before bouncing back a little late on to $1.21 and 86p where it remains this morning. The single currency lost ground to dollar last week, ending the week at $1.04 from touching off $1.06 last Monday

Despite the ECB’s imminent start to rate hikes, the risk off environment last week which saw US bond yields fall also helped European bonds with German 10-year yields down 10bps on Friday alone (to finish around 1.2%) – and down 40bps from Tuesday where they had been over 1.6%. Yields are ticking up slightly this morning

The June ‘flash’ HICP inflation print for the Euro area was a record high at 8.6%, up from an annual rate of 8.1% in May.  Although the core rate did tick down to 3.7% from 3.8% the continued high level of headline inflation may add to the arguments for higher and faster interest rate increases from the ECB once they light the touchpaper and hike by 25bps in July

The US ISM manufacturing index declined more than expected in June to 53.0 from 56.1 in May. Of even greater concern was the employment and new order index which both declined last month to 47.3 and 49.2 respectively, increasing market fears that US growth is set to slow sharply

Data highlights this week includes services PMIs, Euro Area retail sales, FOMC & ECB minutes and US payrolls on Friday. US markets are closed today for Independence Day