Calmer markets

Some calm has returned to currency markets after the sharp enough moves that followed Friday’s jobs data in the US. Relative to yesterday morning, the euro and sterling have both retreated a little further against the dollar to trade at around $1.0920 and $1.2690 respectively this morning. EURGBP is hovering just above £0.86 –  within the range of about £0.85 to £0.8650 that prevailed during 2024 prior to the calling of the snap French elections in early June – with last week’s Bank of England rate cut having taken some of the recent allure off the pound.

There was also some respite for equity markets yesterday. US indices chalked up gains of around 1%, though they did close well off the highs of the day so they may not be out of the woods just yet. That said, Japanese stocks closed higher again overnight – with the authorities there, including the Finance Ministry and the Bank of Japan, attempting to reassure markets – which should help investor sentiment generally today.

US government bond yields have backed up further with 2- and 10-year yields closing around 5bps and 10bps higher respectively yesterday, leaving them up around 25bps and 35bps respectively from Monday’s lows. Equivalent German and UK yields,  which haven’t been anything like as volatile as US yields in recent days, also edged up yesterday.

While Friday’s jobs data prompted fears of an impending recession in the US, the Atlanta Fed’s latest estimate of the run-rate for GDP growth in Q3 – which incorporates the jobs data as well as other data releases since Friday – now stands at 2.9%. This is up from its previous estimate of 2.5% and is actually slightly ahead of the second quarter outturn of 2.8%, suggesting recession concerns are overdone.

It is extremely quiet on the economic data front today, with just consumer credit and mortgage applications due in the US, so markets will have to look elsewhere for inspiration or otherwise!