Some respite for US bonds
There was some respite for US government bonds yesterday, with yields falling back after they had risen quite sharply on Tuesday-Wednesday. The dollar also advanced, helped by some firmer than expected US economic data, but it has failed to hold onto its gains. It is trading at $1.1330 against the euro this morning, off yesterday’s best levels of around $1.1260, and at around $1.3470 against sterling, versus a high of just under $1.34 yesterday. The euro dipped below £0.84 against the pound during yesterday’s session and is just marginally firmer this morning at about £0.8410.
The respite for US bonds saw 10-year yields fall by around 7bps, reversing a good chunk of their increase earlier in the week, and they have edged down further to around 4.5% in overnight trading. Equivalent German and UK yields were broadly flat yesterday, though they are nudging down at the start of play this morning. In equity markets, US stocks fell late in the session, reversing all of their earlier gains to end largely unchanged, while European stocks shed just over half a percent.
Data released in the UK a short while ago show retail sales rose by more than expected in April, with volumes increasing by 1.2% after a gain of 0.1% in March. Spending volumes over the February-April period were up 1.8% on the three months to January and almost 3% higher than in February-April 2024. Separately, consumer confidence rose in May according to the GfK measure, with consumers’ expectations for their personal finances and the general economic situation both improving this month.
Softer than expected Euro area PMI data – the Composite Index fell back into contractionary territory (<50) this month according to the flash reading – would seem to copper-fasten the case for another ECB rate cut at next month’s monetary policy meeting, with the market almost fully priced for a 25bps reduction in the deposit rate (to 2%).
It’s a relative quiet end to the week in terms of economic data. New homes sales are due in the US, while the ECB publishes its latest Indicator of Negotiated Wage Rates for the Euro area.
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