Steady trading in FX and bond markets
The euro is not much changed versus the dollar over the past 24 hours, up very slightly to $1.070 from $1.068, still in the fairly tight range it has traded in for a couple of weeks. The first US presidential debate between President Biden and former President Tump was held overnight, but didn’t produce anything market moving (perhaps unlikely at this stage). The same is true of the Euro versus Sterling cross. It is trading at 84.6p this morning, broadly unchanged versus this time yesterday. Sterling is also broadly flat versus the dollar, holding at the $1.264 level. The dollar continued to move higher against the Yen overnight, albeit marginally, and is now approaching the Y161 level, breaching the high reached earlier in the week (it was up to Y161.2 overnight, but has pulled back a bit). Thus far, despite speculation that Japanese authorities may intervene to try and prop up the currency (which is under pressure due the large interest differential versus other major economies) there have been no developments on this front. Data from Japan overnight was solid, with Tokyo inflation rising to 2.3% in June from 2.2% in May, and industrial production rebounding in May after weakness in April.
Bond yields in the US were down slightly in yesterday’s trading session. US yields fell a bit on foot of data which pointed towards a cooling of growth – the 10-year is trading at 4.30%, down about 3bp on the day, with the 2-year at 4.73%, also down about 3bp. In the Euro Area attention continues to focus on upcoming elections in France, where the polls point to losses for Macron’s party, and are causing some nervousness in markets – however both French and German long term yields were not much changed, though French yields are a few basis points higher this morning. The UK 10-year Gilt yield was down a couple of basis points and now stands at 4.13%.
US GDP growth was confirmed at 1.4% annualised for Q1 (about 0.4% quarter-on-quarter), with consumer spending coming in at 1.5% – this is a deceleration on the annualised 3.5% increase in GDP and 3.3% gain for consumer spending in Q4 last year and indicates that the US economy has lost some momentum. Durable goods orders and pending home sales (both for May) also played to this theme to a degree – although headline durable goods orders rose 0.1% measures of core orders (ex-transport, ex-defence) fell slightly on the month, while pending homes sales fell 2.1% month-on-month following a fall of nearly 8% in April, taking the series to a record low as high mortgage rates and high house prices seemed to put buyers off. Furthermore, Federal Reserve Bank of Atlanta President Bostic said he continues to expect one rate cut this year (in Q4) amid signs inflation is easing and the risks becoming more balanced.
The Economic Sentiment Index for the Euro Area was broadly unchanged in June, coming in at 95.9 compared to 96.1 last month, a touch below consensus expectations. Industrial sector sentiment came in at -10.1 versus -9.9 prior, while services sentiment dipped to 6.5 from 6.8 in May. The employment expectations indicator declined for the third consecutive month and is now a bit below its long run average. Overall this data broadly tallies with the recent PMI readings for the Euro Area, suggesting a slight loss of growth momentum over recent months. The ECB’s Kazaks, head of the Latvian central bank, indicated that market expectations for two further cuts this year seems reasonable and noted that strong wage growth is holding the ECB back from cutting more rapidly.
UK Q1 GDP growth was revised up slightly, to 0.7% quarter-on-quarter from the preliminary estimate of 0.6%, indicating the rebound in the British economy early this year after a weak performance in H2 2023 was a bit more robust than previously thought – though business investment was revised down a bit (to +0.5% q-on-q from +1.4%).
Economic data due today includes personal income and spending in the US, along with PCE inflation for June (the Fed’s preferred inflation guage) and the University of Michigan Consumer Sentiment Index. German labour market data is also due for release.