Core bond yields edged higher yesterday. The move in the German 10-year yield was marginal, while the US 10-year yield climbed 2bp.
Core yields should have some more upside potential today, but no bigger losses are yet in sight for bonds.
Intra-Euro-zone spreads narrowed, as bonds outside the semi-core rallied in earnest again. Both Italian and Spanish 10-year yields tumbled to fresh record-lows, with the Spanish one falling by close to 5bp to below 2.50%. This rally continues to have legs.
European equities took modest losses, but US equities recovered from early weakness to end the day roughly flat. Asian markets are trading with more gains this morning, while Europe is set to open slightly higher.
US housing market continues to struggle – confidence indicators positive
The US pending home sales index fell by 1.1% m/m in June, a minor disappointment. The June drop was no catastrophe, as it followed a 6% jump in May and three consecutive monthly advances. However, sales remain 2.3% lower compared to a year earlier, illustrating the housing market is still not doing great.
The Markit services PMI, in turn, stayed at a high 61.0, which meant the composite PMI retreated only marginally from 61.0 to 60.9. The Markit confidence indices paint a very positive picture of the US economy, one that awaits confirmation from the more followed ISM indices early next month.
Russian sanctions on the agenda again
The leaders of the four largest EU countries, following a conference call with the US President, confirmed their intention to adopt new measures against Russia yesterday. The new sanctions would be aimed a key sectors of the Russian economy, and would thus go much further than anything the EU and the US have imposed so far, marking a further escalation in the crisis and hurting the Russian as well as the EU economic outlook. The new sanctions could surface as early as today, but more likely it will take a few days, while the severity of the sanctions is more likely to be somewhat less rather than more compared to many of the recent reports.
US house prices and consumer confidence ahead
Even though the latter part of the week will have plenty to offer, today’s calendar does not look particularly heavy. The pace of US house price gains, as measured by the 20-city S&P / Case-Shiller index, likely rebounded in May (numbers out at 15:00 CET), while the US consumer confidence by Conference Board will be revealed at 16:00 CET.
In the Euro zone, Spanish June retail sales will be out at 9:00 CET, and the ECB’s main refinancing operation results at 11:10 CET.
On the issuance front, USD 35bn of 5-year notes will be auctioned.
Nordea