German and longer US yields edged lower yesterday, while shorter US yield rose a bit. In general, the moves were rather limited, while trading volumes were rather low. Intra-Euro-zone spreads mostly continued to narrow, another illustration of the resilience of these markets.
The German 10-year yield remains around 1.15%, only a touch shy of its record (intraday) lows from 2012. Core bonds are set to remain supported for now, as geopolitical tensions could easily pick up further, but US inflation numbers today have the potential to lead to a small US-led sell-off (see more below).
Equities recorded losses yesterday, especially in Europe, while US markets pared most of their earlier losses (S&P 500 ended lower by 0.23%). Asian markets are trading broadly higher this morning, though, and also Europe is set to open higher. More pressure could easily surface during the day.
More sanctions on Russia in the pipeline
The EU foreign ministers will meet today to decide on further sanctions on Russia. The foreign ministers cannot decide on the so called phase three of sanctions, but can provide the details of the sanctions approved in the EU summit last week. However, the calls for the wider phase three sanctions that would target entire sectors of the Russian economy are getting louder. E.g. the UK Prime Minister Cameron said that for too long there had been reluctance in too many European countries to admit what was really going on in Ukraine, and now was the time to make our power, influence and resources felt.
It still seems likely that no quick decision on the phase three sanction will be taken, but the risks of even harsher measures has increased, which will keep uncertainty high and darken also the clouds over the Euro-zone economy.
US inflation pressures finally picking up?
The highlight in today’s calendar will be the US June inflation report at 14:30 CET. Core inflation surprised to the upside last month, lifting the annualized 3m/3m rate to 2.3%, the highest in almost two years. Considering that inflation and wage pressures are the key in determining, when the Fed will start to raise rates, while the market tightening expectations are not particularly aggressive, the market reaction should be stronger in response to another upward surprise in the data.
Elsewhere in the calendar, the ECB will release the results of its latest main refinancing operation at 11:10 CET, the US FHFA house price index for May will be out at 15:00 CET, while US June existing home sales will see daylight at 16:00 CET.
Belgium to sell longer bonds
The only EUR government bond auction of the week will take place today. Belgium will re-open bonds maturing in 2024 and 2026 for a combined EUR 1.5 to 2.0bn. The next Belgian bond auction after today is not scheduled until towards the end of September.
Nordea