The Market Today
The Economic Waters Ebb after Two-Week Flood of Data
by Craig Dismuke, Dudley Carter
This Week’s Calendar – Housing Starts and Building Permits Lead Slow Week for U.S. Economic Calendar, Thursday’s ECB Decision in Focus: After two consecutive weeks inundated with economic data and central bank decisions and communications, this week should finally offer a bit of reprieve. There is no Fedspeak on the calendar as the official silent period ahead of next week’s policy meeting and decision has begun. The most notable central bank activity should be the ECB’s latest decision scheduled for early Thursday morning. Concerns of recent shifts in the mindsets of certain ECB officials were responsible in part for the recent move higher in global sovereign yields. Reports last week indicated the ECB could make an announcement at its September meeting that it intends to begin some form of tapering of its QE asset purchases. As such, any wordsmithing in the Statement or President Draghi’s press conference comments will be closely scrutinized. No changes are expected at this week’s meeting. As evidence of how slow this week’s economic calendar is, Wednesday’s housing starts and building permits data should be the highlights. Both are expected to rebound from extremely weak May results. This should leave investors focused on the ramping up of the Q3 corporate earnings season.
Overnight Activity – Yield Curves Flatten Further after Last Friday’s Disappointing U.S. Data: Last Friday’s yield drop in the U.S., sparked by disappointing inflation data and another soft month for retail sales, has expanded into Monday’s global session. Sovereign yield curves are flattening on lower yields this morning with the biggest seen in yields of U.K. gilts. The chief negotiators for the EU and U.K. met in Brussels Monday for the second round of Brexit negotiations. The British pound is Monday’s worst performing currency. The weaker pound has helped the U.K.’s FTSE 100 to the top spot among on the global equities board. Global equities are mixed, adding to the support for global sovereign debt. Shares in China are currently Monday’s worst performer despite a better-than-expected 6.9% 2Q GDP report. The losses for Chinese equities followed comments from President Xi Jinping that focused on continuing to address financial market regulations. His comments included a statement that the PBoC would play a bigger role in addressing financial market risk. In the U.S., Treasury yields are lower by 1.2 bps on 2s and 2.9 bps on 10s. The Dollar has stabilized after earlier touching a 10-month low. U.S. equity futures are modestly higher as corporate earnings is set to begin in earnest.
ICYMI – Last Week’s Market Recap: Yields fell last week following divergent signals from the Fed and ECB – this time the Fed was seen as more dovish, the ECB more hawkish – and another round of weak inflation and retail sales data. Click here to read a summary and download the full recap.