Quiet start to the week in markets

It was a fairly quiet start to the week in markets. Bonds mainly treaded water following a sharp fall in yields last week, while US stocks recovered some ground having been on the back foot over the past few sessions. In FX, the euro is hovering around the $1.14 level against the dollar, largely unchanged from yesterday morning’s levels. Sterling is marginally firmer against the US currency at about $1.3240, and is also inching higher against the euro albeit still holding just above £0.86. More notably, the yen has fallen to new record lows of over Y162 against the dollar, which obviously carries with it the risk of official intervention to support the currency.

US and German government bond yields ended flat to slightly higher yesterday, while UK bonds outperformed a touch, closing out the day unchanged to slightly lower. In equity markets, the Nasdaq led a rebound in US stocks, gaining just over 2% (having shed almost 5% last week), while European indices were unchanged to marginally lower on the day.

UK GDP data released a short while ago showed the economy expanded by a healthy 0.6% q-o-q in the first quarter of this year – confirming the initial estimate published a while back – with consumer spending (+0.6%) and business investment (+0.9%) both advancing in the quarter, but high-frequency indicators point to a moderation in the pace of economic activity since (largely on account of the fall-out from the conflict in the Middle East). Meanwhile, Prime Minister-elect Burnham promised a decade of renewal for the UK in a keynote speech yesterday, saying his plans would be based on “the stability that comes from sound public finances” and “the discipline of our current fiscal rules”.

ECB Chief Economist Philip Lane says he is “focused on the indirect effects” of the energy price shock and “how the four months of energy-cost increases percolate into food inflation and services inflation in particular,” while adding that the ECB is committed to “not boxing ourselves in” on the path for interest rates.

Looking to the day ahead, economic data include consumer confidence, house prices and job openings in the US, while a flash reading of inflation in June is due in Germany ahead of inflation data for the Euro area tomorrow. The ECB’s Central Banking Forum continues in Sintra.