The Weekly Update

After eight straight weeks of Treasury yields falling from over 2.5% to 2% we saw some very slight pull-back last week as 10-year yields rose 3 basis points to close out the week at 2.03%. Correspondingly equity valuations were boosted on a mix of good data with the S&P 500 pushing new highs and closing the week up 1.65% at 2,990, just 0.3% below 3k.

The meek pick-up in markets has continued in the wake of the fragile trade truce between the US and China agreed at the G20 last week, with this optimism then boosted by a week of upside surprises in PMI, ISM and non-farm payroll data with the last of these coming in at 224k versus estimates of 160k. Taken together with the other resilient indicators, the stronger payroll headline should dispel the calls for a 50bp ease at the end of July meeting, but 25bp is still likely given the Fed does not meet in August. After July the next meeting is September 18th so we have two more NFPs by then. Of course, trade frictions and the President’s involvement could have a massive impact in the meantime.

Over in Europe, the data painted a broadly weaker picture with a -2.2% slump in Germany factory orders, far worse than the predicted -0.2%. At least the markets seemed to welcome the proposals for the next European Central Bank Chair, Christine Lagarde, and European Commission President, Ursula von der Leyen. Lagarde is seen as a tame and tolerable choice who symbolises a likely continuation of Draghi’s accommodative policies but also signals the further trend of central bank politicisation as – like Jerome Powell  - she is not your usual hardened economist.

Forthcoming economic data includes Japan machinery orders and balance of payment data in addition to Germany trade and industrial production on Monday; this is followed by Australia business confidence on Tuesday and Australia consumer confidence on Wednesday, along with UK trade balance, GDP, industrial and construction output, China inflation and FOMC minutes. On Thursday are US, Germany and France inflation data, followed by China trade and foreign direct investment data, Japan and Euro area industrial production and US PPI on Friday.

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