Quiet start to the week in markets
It was a very quiet start to the week in financial markets. There was some relief for the US government bond market with long-dated yields edging down, while the dollar has steadied for now having lost ground over the latter part of last week. The euro and sterling are trading at about $1.1660 and $1.3640 respectively, a touch lower than yesterday morning and down from last week’s best levels of around $1.1710 and $1.3675. EURGBP is trading a little softer this morning though still within its recent narrow range at just under £0.8550.
There was some respite for US government bonds. While short-dated yields were largely unchanged,10- and 30-year yields both edged down by around 4bps, taking them back below the levels that prevailed just before the Treasury’s bond buyback announcement last Wednesday. German and UK 10-and 30-year yields were flat to marginally lower, but short-dated yields nudged up by 2-3bps. In equity markets, US indices had a mixed session with the Nasdaq (-0.8%) and S&P 500 (-0.3%) both losing some ground but the Dow Jones (+0.3%) in the black for the day, while European indices were flat to modestly lower.
Market expectations for a Fed rate hike at the September meeting have hardened somewhat over the last while, despite soft inflation and labour market reports for July, with the chances of a 25bps increase in the fed funds rate currently seen at just under 45%, up from about 33% a week ago. Regarding the ECB, the market remains (almost) fully priced for a quarter-point increase in the deposit rate (to 2.50%) next month, while it continues to see a slim chance (circa 15%) of a move from the BoE at its September meeting.
For the day ahead, economic data due relate to the US. They include consumer confidence (Conference Board measure) and new home sales, both for July, and the weekly ADP private employment report covering the period up to August 8th. Fed member Barkin speaks on the outlook for the US economy.