Sunset Market Commentary

Markets

The ‘waiting game’ continued today in Europe and at the onset of the US trading session, counting down in the first place to today’s BLS payrolls revisions and to the Minutes of the Fed July 31 policy meeting later today. Even the $16 bn sale of 20-y US Treasuries might provide some insight on investors’ appetite for long maturity fixed income after the recent sharp market repositioning. On Friday and earlier this week, the absence of any news mostly resulted in a by default decline in core (US end EMU) bond yields and a weaker dollar. There was no trend reversal today, but the decline in US yields took a breather today (changes less than 2 bps across the US yield curve). Especially the long end of the US yield curve is nearing key support (US 10-y yield 3.78/3.80% area; US 30-y yield 4.05%/4.0% area). The 2-y yield is still some way off the low levels touched earlier this month. Even so, the 4% big figure maybe also triggers some caution. German Bunds marginally outperform Treasuries today further easing between 2.5 bps (2-y) and unchanged levels (30-y). Similar story for the dollar. After tentatively testing YTD lows near 101.25/35 this morning the DXY TW US index also shifted to a ST wait-and-see stance (101.45 area). EUR/USD is holding north of 1.11 with the 1.1139 December top still within reach. After a pause yesterday in the US, major equity indices showed minor gains in the run-up to the BLS labour data revision. (Eurostoxx +0.5%, S&P 500 +0.2%)

The UK budget data usually are no market mover and this was also the case today. Even so, public sector net borrowing in July again came out higher than expected (£3.1bn) and the April-July budget deficit also stays higher than the March OBR projections. It illustrates limited room for the new government to support growth. Ceteris paribus, this in theory at some point suggests a potentially bigger role for monetary policy, but the market understandably didn’t react to volatile monthly data. Gilts even marginally underperformed Bunds. Sterling gained marginally against the euro (EUR/GBP 0.853). For now, the EUR/GBP 0.85 intermediate support holds.

News & Views

The first set of hard Polish eco data from the third quarter provided a mixed picture as industrial production fell 0.2% M/M and employment growth (+0.1% M/M) remained negative in Y/Y terms in July (-0.4%). However, it will be July’s retail sales and construction activity data (posted on Friday) which will indicate whether the economy has kept its strong momentum from the 2nd quarter or not. Recall that last week’s Polish GDP release showed a significant upward surprise with the economy growing briskly: 1.5% Q/Q which translates into 3.2% growth in Y/Y terms. Moreover, there has been an upward revision of the first quarter GDP reading (from 0.5% Q/Q to 0.8%), triggering upward revisions to estimates for the 2024 annual figure as well.

Data from the energy industry group Gas Infrastructure Europe showed that European gas storage hit the 90% marker. That’s more than two months faster than the EU’s November 1 deadline of meeting that bar. Last year around, storage sites had even slightly more inventories. They help offset supply risks. Benchmark gas futures (Dutch TTF) continue hovering near their lowest levels since early August (€37.66/MWh).