Markets are shaken by US jobless claims; ECB and Fed meetings await

Markets

Of all things, US weekly jobless claims were what caused the most market movement yesterday. More applications than expected—261k instead of 235k—increased from 233k to 261k. It started a surge in US bonds that also lifted peers in Europe. It doesn’t alter predictions for a pause at the Fed meeting next week, but it did provide some contrast after this week’s statements from the Reserve Bank of Australia and the Bank of Canada. Both served as hawkish reminders that tightening cycles might be restarted after leaving rates unchanged one or more times. US rates decreased by 3.9 to 8.5 bps, with the curve’s belly outperforming. German yields decreased by 4.2-4.4 bps. US currency declined. DXY (trade-weighted) dropped from 104.06 at the start to 103.34 at the end of the day. To close near 1.078, the EUR/USD broke the above intermediate barrier between 1.0735 and 1.076. spillover effects from GBP/USD drove EUR/GBP down for the day as well. Near the June lows, at 0.858, the pair closed. Particularly in the US, a healthy risk appetite existed. The tech-focused Nasdaq increased by roughly 1% and is still quite near its year-to-date.

Most Asian stock trades are positive. After the Nikkei index retreated from a 30-year high over the past two days, Japan outperforms. The price information from this morning (see below) has no effect on Chinese markets. As expectations for additional monetary policy support grow, stocks are flat and the Chinese yuan is trading slightly weaker. The win of South Korea surpasses its Asian rivals (USD/KRW falls to 1292.45, its lowest level since April). The G10 region’s currencies trade quietly. Today’s underperformer is the Japanese yen. Core bonds are trading at their closing levels from yesterday, and we don’t anticipate any significant directional activity later today. There are no significant US or European releases on the economic schedule, but the Canadian labor market data is worth highlighting considering the BoC’s unexpected rate hike. Investors in markets other than Canadian are likely to stay away in the lead-up due to the approaching weekend and, more crucially, the ECB and Fed meetings scheduled for next week. To that end, we also don’t have a firm opinion about the dollar or the euro. After clearing a preliminary obstacle yesterday, attention is now focused on the 1.08 huge figure from a technical standpoint.

News and opinions

China’s May price figures, which were released this morning, indicated that the country’s demand/supply balance was not particularly stressed, indications of a rather slow economic recovery, and resurrecting calls for monetary stimulus. The CPI inflation rate increased slightly from 0.1% in May to 0.2% Y/Y. From April, prices fell 0.2% M/M lower. Prices for consumer products were 0.3% less than they were during the same time last year. Inflation for services decreased from 1.0% to 0.9% Y/Y. Outright deflationary trends even got worse on the producer side of the economy, where PPI fell by 0.9% M/M. The greatest decrease in factory gate prices since February 2016 occurred in May when they were 4.6% lower than in the same month last year (they were -3.9% Y/Y in April). Price declines were widely apparent across subcategories. For the time being, the yuan has been mostly unaffected by the deflationary environment and calls for additional stimulus, with the USD/CNY rate just marginally increasing to 7.122. The dollar did, in fact, lose some momentum this week.