The EU summit is up later this week, and French and peripheral EU spreads moved wider on the day – but the market is shrugging its shoulders so far in a show of surprising complacency.
Spanish 10-year yield moved 10 bps today as it auctioned debt, with less interest at the auction than at the May auction. Bloomberg raised the issue of French bond yields today, pointing out that the shrinking spreads between German and French debt have yielded to a re-widening. After all, according to the article, French banks hold some half a trillion USD in EU sovereign bonds. The spread has only moved out about 13 bps from the tightest level, but it is noteworthy nonetheless and important to watch how the French bond market greets any new policy initiative from the Hollande government, not to mention the trajectory of the French economy and the EU political situation.
The pound not particularly disturbed by the public spending figures for May that were released today, though it might ought to be: the public sector net borrowing figure came in at a whopping 15.6B vs. 14.0B expected and the public finances balance was out at -4.4B for the month vs. +4.0B expected. This was the worst April-May for public finances in many years and one would think it would give GBP safe haven seekers some pause, but the market has blinders on at the moment for UK data as it’s all about Euro-aversion, and EURGBP slipped below 0.8000 on the day and is now back within striking distance of the multi-year lows a bit lower.
Chart: GBPUSD
GBPUSD can’t figure out what it wants to do in this important 1.5600 swing area. To the upside, we still have the critical 200-day moving average in place, while the bears need more weakness in risk appetite to get the pair back lower for a try at the lows of the range.
Looking ahead
Ahead of the EU summit this Thursday/Friday, Germany is complaining that too much effort is going into crafting plan that involve debt sharing rather than plans tha require fiscal discipline, suggesting that German resolve will not crumble on the EuroBonds/fiscal union front, though it will inevitably attempt to circulate a plan more akin to its preference: funds in exchange for fiscal guarantees and/or oversight. Good luck, Europe….
Look for US consumer confidence out shortly and stay careful out there: the market seems oddly unconcerned and complacent today, but I don’t trust the quiet of the moment.
Economic Data Highlights
Japan Jun. Small Business Confidence out at 46.2 vs. 47.2 in May
Germany Jul. GfK Consumer Confidence out at 5.8 vs. 5.6 expected and 5.7 in Jun.
Switzerland May UBS Consumption Indicator out at 1.05 vs. 1.37 in Apr.
Sweden May PPI out at -0.5% MoM and +0.3% YoY vs. -0.2%/+0.6% expected, respectively and vs. 0.0% YoY in Apr.
Italy Apr. Retail Sales out at -1.6% MoM vs. -0.6% expected
US Apr. S&P/CaseShiller Home Price Index rose +0.67% MoM vs. +0.3% expected
Upcoming Economic Calendar Highlights
US Jun. Consumer Confidence (1400)
US Jun. Richmond Fed Index (1400)
US Weekly API Crude Oil and Product Inventories (2030)
New Zealand May Trade Balance (2245)
John J Hardy,
SAXO BANK