Longer German bonds rallied on Friday, supported by disappointing US payrolls data, while intra-Euro-area spread narrowing continued. The German 10-year yield ended the day lower by 4bp, while Spanish and Italian 10-year yields plummeted by around 10bp, both hitting new record lows. Shorter German yields showed signs of stabilizing after the big drop the day before.
Shorter yields in the US ended Friday lower, but the payrolls data failed to boost longer Treasuries for long. The 10-year yield actually ended the day higher by around a bp.
Bonds are likely to be supported again today and yields edge lower. Risks are the cease-fire agreement reached in Ukraine will be increasingly questioned, as there have been reports of some fighting continuing over the weekend, while more sanctions on Russia still appear to be on the table.
European equities could not extend their gains on Friday, but in the US S&P 500 edged to a fresh record closing high with a 0.5% advance. Asian equities are mostly with small changes this morning, while Europe is set to open slightly lower.
Chinese August trade data for August did not impress. Exports did grow by 9.4% y/y, slightly higher than expected (but down from 14.5% in July), but imports disappointed clearly with a 2.4% y/y contraction, pointing to still relatively weak performance in Chinese domestic demand.
Weak US payrolls not changing the overall picture
US payrolls disappointed in August, rising by only 142k (vs. 230k expected), the lowest number of monthly job creation seen this year. The net revision to the prior two months was -28k. Average hourly earnings growth rebounded from an upward revised 0.1% m/m in July to 0.2% in August, while the average workweek was unchanged. The unemployment rate edged down to 6.1% (from 6.2%), largely on the back of a contraction in the labour force.
The August jobs report does not put new pressure on the Fed to accelerate its exit plans, and the still modest wage gains suggest policy tightening will not be on the agenda in the near future. However, one should not conclude that the US labour market momentum would have deteriorated significantly based one report, as the payrolls data is rather volatile from month to month.
Scottish independence race tightens
The British pound has felt pressure today, as a poll released over the weekend showed the yes-camp in lead for the first time this year in the question of Scottish independence. As the 18 September vote nears, the question is set to receive added attention also outside Britain, and has the potential to cause some worries also in the Euro area.
US retail sales and Ukrainian developments
Today’s data calendar looks very light. The highlights are the Chinese lending, inflation and industrial data in the latter part of the week and US August retail sales on Friday. In addition, the developments in the Ukrainian situation will continue to receive attention.
Today’s calendar looks light as well. The ECB’s Nowotny it set to speak at 18:15 CET.
Plenty of action on the auction front
This week’s auction calendar looks rather crowded on both sides of the Atlantic. In the Euro area, Austria, will re-open bonds maturing in 2024 and 2034 for a combined EUR 1.21bn tomorrow, while the Netherlands will tap its 10-year benchmark for EUR 1.5 to 2.5bn. Germany will auction a new 10-year benchmark for EUR 5bn on Wednesday, while Italy will sell fixed-coupon bonds & floaters on Thursday.
In the US, USD 27bn of 3-year notes will be offered tomorrow, USD 21bn of 10-year notes on Wednesday and USD 13bn of 30-year bonds on Thursday.
Coupon and redemption payments from EUR government bonds will amount to EUR 15bn, mainly stemming from a maturing German bond.
Nordea