German 10-year Bund yield just keeps falling. Yesterday the Bund yield made once more new all-time lows, this time at just below 0.9%. Markets are getting totally enthusiastic about the ECB’s possibilities to conduct new measures already in September. In addition geopolitical tensions support safe haven bid.
Also the periphery bonds continued to perform with Spanish and Italian 10-year yields falling as well to new all-time lows.
In the US the 10-year Treasury yield dropped to 2.35%. US yields are pressured by geopolitical tensions and also by the substantial fall of European yields. US 30-year yield fell to the lowest level since May 2013.
Today markets remain nervous as the tensions in Ukraine are again building. Euro area inflation numbers start coming out today, brace for low numbers.
Tensions in Ukraine building
Kiev accused Russia of sending more troops into its territory right after the talks between the presidents Putin and Poroshenko. Ukraine claims Russian troops had seized several villages in the South.
Renewed tensions keep the hopes of a fast solution to the conflict still at bay. Nervous sentiment will keep supporting safe haven bonds.
ECB’s bond purchases taking a step forward
FT writes that the ECB has stepped up preparations for its ABS purchase program by appointing BlackRock to advise on a possible bond-buying scheme.
We expect the ABS purchase program to materialize but it will still take time. However, after Draghi’s speech in Jackson Hole, the central bank is now in a hurry to deliver probably faster than the original plan was. More information should be out already in next week’s meeting.
First pieces for the inflation puzzle
As the inflation expectations have come down substantially lately, also the spot inflation figures should receive a lot of attention. Euro area inflation numbers for August are due on Friday and today we get the first hints with the German and Spanish numbers.
We expect the German inflation to stay rather stable in August and the annual change to remain at 0.8%.
The Spanish consumer prices, in turn, should continue to drift lower just as they did in July. We expect an annual change of -0.4% for August.
These pieces would put our Euro area inflation call to 0.3%. The risks are tilted to the upside though this time around.
What’s next for France?
France got a new government. After the reshuffle, France now has a more coherent government with a reform minded new economy and industry minister. As such, that’s good news.
The best thing that could happen is significantly more effort in France on the structural side that will be rewarded by Brussels and Berlin according more time for deficit reduction. Read more here: https://nexus.nordea.com/#/article/12498
Euro area credit figures and US GDP
Euro area credit figures and economic sentiment indicator are out today. Continuous improvement in the credit impulse would support the hopes the demand for funding is improving. That would in turn be encouraging for the ECB’s TLTRO take-up that is basically tied to lending growth.
From the US we get the second take on the Q2 GDP figures that should be revised from 4.0% to 3.9%. Downward revision to inventories largely outweighes by upward revisions elsewhere. Small changes should not result in large market moves. In addition, pending home sales are out today.
A new 10-y bond from Italy
Italy issues a new 10-year bond that targets 3.5-4.0bn euros. In addition, Italy auctions 2-2.5bn euros of 5-year bonds and 1-1.5bn euros of floating rate notes linked to Euro area inflation. The US Treasury will sell $29 billion in seven-year notes.
Nordea