Souring risk sentiment sunk equity markets and supported government bonds. Smaller than expected increase in US consumer spending, hawkish comments from Fed member Bullard and worries in the financial sector were to be blamed.
The German Bund yield continued its venture towards one-year lows and the yield tested levels below 1.24%. With the month and quarter end looming, it does not seem farfetched any longer for the Bund yield to continue slipping towards the lows of 1.13% seen in summer 2012.
10-year US Treasury yield came down 3bp to 2.53% and continued slightly downwards in Asian trading. Today weak Japanese household spending gives more material to the more cautious sentiment.
First inflation impressions
Today we’ll get the first impressions on the June Euro area inflation. We expect the Spanish inflation print slightly higher at 0.1% m/m after zero growth the previous month. Also German numbers are expected at 0.1% m/m after decreasing in May.
With these ingredients Euro area inflation should come out at 0.5% y/y (0.1% m/m) on Monday. As the market is already geared for low numbers, they should not come as a big surprise even though the consensus is looking for a 0.6% figure.
ECB will not change its plans based on this either, and next week we expect no new measures from the central bank.
Some more structural reform
According to the draft statement seen by Reuters, EU leaders are about to give more leeway to countries struggling with huge debt loads in today’s summit. The key word again is structural reform that could buy extra time to fill the required budget balance and debt levels.
Structural reform is essential in turning the still struggling Europe towards more sustainable growth. Fast fixes are unlikely to materialize, however, as the market pressure on the governments is pretty much gone.
Carney’s tiny tightening step
Bank of England announced two macro prudential measures yesterday to address potential risks in the housing market.
First, banks need to ensure that mortgages are affordable by testing for higher rates than before, not a game changer. Second, new mortgage lending at or over 4.5 times income would be limited to no more than 15% of new loans. This is unlikely to have a material effect, as the threshold currently would apply only to some 10% of new mortgages.
New measures are more of a precautionary nature and unlikely to have a large scale immediate impact. Hence, markets continue to look for signs for BoE’s hiking plans.
Today’s calendar
No football in the calendar tonight. On the rating front, Moody’s has a chance to take a look at ratings of Austria, Germany and Luxembourg and S&P at Slovenia. No major market moves should be expected.
Italy will issue a new 5-year bond targeting 3-4bn euros. In addition, tap for a 10-year bond targets 2-2.5bn euros. On the macro front we get e.g. economic sentiment indicator from Euro area that is expected to stay unchanged from the previous month.
Nordea