German Bund yields stayed one more day at a touch below 1% clearly ignorant of anything that goes on in the other markets. Not that there was a lot of major news apart from the soft PMIs and some second rank US data.
Also the Italian and the Spanish yields were stable whereas the Portuguese and the Greek ones drifted lower.
In the US the 10-year Treasury yield was 2bp lower at 2.41% as the ok data was compensated for by the nervousness ahead of Jackson Hole.
Focus is already at Jackson Hole and the speeches by Yellen and Draghi tonight at European time.
Doves against Hawks
Better than expected US data continued yesterday with existing home sales rising 2% when consensus was looking for a slightly negative number. The Philly Fed in turn surprised on the upside but the components provided a soft touch.
After the slightly hawkish Fed minutes and ok US data, Yellen’s message today at 16.00 CET in Jackson Hole conference is followed with excitement even though the speech is titled excitingly labour market.
While the labour market continues to improve, the continued weakness in average hourly earnings in July are likely seen as supporting the idea that significant slack remains in the labour market. Therefore the accommodative Fed policy remains appropriate. Hence, most likely Yellen’s message remains rather dovish.
We expect Yellen to remain content with normalising policy slowly until there is clear evidence of higher wage increases.
The hawkish turn in the Minutes did not result in a clear rise in US yields which tells something about the market positioning. Yellen would need to be real hawkish to make yields edge considerably higher, and the odds are she won’t be.
Whatever it takes 2.0?
Euro area flash PMI numbers came in slightly weaker than expected but were in no way dramatic. The service sector looks quite robust, while manufacturing in losing steam.
Markit calls the data consistent with GDP growth of 0.3% q/q in Q3. Our recent experience with PMI numbers and a look at the whole picture leads us to expect less. However, one cannot read these numbers as a recession signal.
So slow growth ahead. This will keep hopes up that the ECB will start a full scale QE program. After the disappointing GDP numbers and the PMIs slightly on the soft side, the Draghi speech tonight at 20:30 CET in Jackson Hole is getting even more interesting.
Draghi will most likely stay dovish, but we expect no promises of new measures at this point with the TLTROs still about to materialize. So no whatever it takes 2.0 coming up today.
A new Portuguese bond coming up
Portugal may issue a new longer-dated government bond later this year via a syndicate according to a government official quoted by Reuters. In total the rest of the year the country seeks to raise 3bn euros of new funding part of which might be covered by auctions.
With the current developments in the bond markets, the Portuguese bond should be well received. Portuguese 10-year bond yield dropped to 3.2%, the lowest level since September 2005 yesterday with the hopes of further easing from the ECB.
Nordea